Oil prices to determine interest rate moves in Russia

The fact that the ruble has strengthened since Russia’s surprise cut in interest rates last Friday is more a reflection of the subsequent rebound in global oil prices than it is an endorsement by markets of the central bank’s action. Movements in oil prices will continue to determine how much space the central bank has to lower interest rates from emergency levels without undermining the currency. Our view is that further rate cuts may now be possible in the months ahead, but the pace of easing is likely to be more gradual than is currently priced into the market.