The Central Bank of Russia lowered its key policy interest rate by 50bp to 6.50% last week, citing a more rapid disinflation than expected and declining inflation expectations. Headline inflation fell from 4.3% y/y in August to 4% in September and 3.8% in the first half of October. We expect it to decline further to 3.5% by year-end and forecast an average inflation of 3.8% in 2020. This leaves room for further monetary easing in the next quarters, especially as the economic growth outlook remains bleak. We forecast GDP to expand by +0.7% in 2019 and +1.1% in 2020. Also last week, the National Bank of Ukraine cut its policy interest rate, by 100bp to 15.50%. The move appears appropriate and the overall monetary policy stance remains cautious, as inflation fell to 7.5% y/y in September and we forecast it to reach 7.0% by year-end. Disinflation has been supported by a sizeable appreciation of the UAH in 2019 (+9% YTD vs. USD). In 2020, we expect a stabilization of the currency and of inflation (average 6.8%).
