OREANDA-NEWS. October 01, 2009. CBR cut interest rates again. The refinancing rate was decreased by 50bp to 10%, while most other rates, including those on loans secured with non-marketable assets and CBR deposit rates, were also cut by 50bp. The minimum rate on key one-day auctioned REPO with CBR was cut by 25bp to 7.25%. CBR Deputy Chairman Ulyukaev stated that further rate cuts are possible, reported the press-centre of OTKRITIE FC.

View: This is the 7th consecutive rate cut since April 24, with the total decrease amounting to 300bp. While the market clearly expected another CBR cut, the rate cut was both larger and sooner than expected. As CPI for the period of August through September 21 was posted at zero, it now is a lesser concern to CBR. We believe the CBR move reflects Russia's current economic weakness.

The 10.5% YoY drop in GDP in August confirmed that recent improvements are unsustainable. This timely measure will help allow for cheaper lending rates. However, we do not expect it to boost banks’ lending in the near-run due to high risks and the extremely limited number of quality borrowers. Additionally, due to the attractiveness of the ruble for carry trades in September, Russia's currency has appreciated against the bi-currency basket by some 4.6%, which has been viewed as a bit excessive. Faster rate cuts are viewed as a means to limit this process.