Russia’s bond market hardly moved in reaction to the central bank’s surprise re-start of its easing cycle last week. However, we think the policy rate will ultimately be lowered much further than markets anticipate, bringing local currency government bond yields down significantly. We were among a small minority of analysts that correctly predicted that the Russian central bank would lower its policy interest rate last week (it did so by 25bp, to 9.75%). Most had expected no change. Despite the surprise decision, the bond market’s reaction was muted. Ten-year local currency bond yields are down by just 9bp since the decision and one-year yields are actually higher.
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