It's all about inflation. Russia desperately needs to cut interest rates if it is going to change from the consumption lead model that dominated the noughties to an investment driven model, which seems to be at the core of the new Alexei Kudrin "Plan K".

However, the investment lead growth won't work with the Central Bank of Russia (CBR) policy rate at 10.5%, even after the regulator cut rates by 0.5% for the first time in ten months on June 9.

There are four more CBR meetings left this year, with the next scheduled for July 29, to produce further cuts in the lending rate. And the central bank can only do that if inflation continues to fall. CBR governor Elvira Nabiullina has set the inflation target at 4%, which she hopes to achieve in 2017. Analysts believe the overnight rate could be cut to 8.5% by the end of the year, but the outlook for inflation is less certain.

"According to Rosstat, inflation was unchanged in May at 7.3% y/y for the third month in a row and came in line with our estimates based on the weekly statistics. Combined with the run rate stabilising at 0.4% m/m, inflation statistics point to contained inflation risks, while seasonally adjusted price growth of 0.26% m/m is consistent with the CBR's long-term goal of 4%. However, these are short-term trends," VTB said in a note.

The bne IntelliNews consensus forecast of seven leading banks and International Financial Institutions (IFIs) says inflation will fall to 7.6% by the end of this year and 5.7% next year. If that happens then interest rates could continue to fall over the next 18 months and there is a chance that Russia's companies will start borrowing again.

However, much depends on what happens in  the meantime to both oil prices and the currency. The situation remains fluid.

That said, the situation is already looking more positive. The CBR improved its forecast for economic growth on June 13 from a 0.7% contraction to a 0.3% contraction in 2016 and predicted that Russia will return to growth next year, with some positive growth possibly appearing in the last two quarters of this year.

However, the reason the regulator felt confident to cut rates in June was the clear falling inflation trend; fears that inflation would tick up over the summer seem to have been overdone and the trend down is clear as the heat map from VTB Capital below clearly shows.

"The gradual disinflation in non-food items (CPI slowed 0.1pp to 8.4% YoY) offsets some of the acceleration in the food segment (up 0.3pp to 5.6% YoY), while the more sticky inflation in services kept pace at 8.4% y/y. The net effect of the intragroup changes was neutral, so the headline has remained intact at 7.3% y/y since March,” said VTB.