Russia’s central bank justified its surprise decision to hike interest rates this morning on stubbornly high inflation, but it’s pretty clear that this is a pre-emptive move to limit capital outflows ahead of possible new sanctions by the US and Europe. Forecasting the future path of interest rates when the geopolitical situation is in such a state of flux is almost impossible, but the consensus view that rates will fall over the second half of this year and into 2015 looks complacent. We’ve always argued that rates will remain high despite the weakness of growth – and it’s now obvious that even we’ve been too dovish.
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