Russia's Consumer Price Index (CPI) in October fell again to an extraordinary low of 2.7% year-on-year down from the already low 3% seen in September, Rosstat statistics agency said on November 7.

Inflation has strongly overshooting the Central Bank of Russia (CBR) target of 4% set for 2017, diving from double-digit price growth in less than two years.

However, the CBR keeps pointing to stubborn inflationary expectations and other medium-terms inflationary risks and sticks to the moderately tight monetary policy despite the pressure from the government to support growth with lower interest. The current rate is by far the lowest in post-Soviet history but the population remain stubbornly convinced that the fall is temporary, according to the CBR surveys. The result is inflationary pressure remains lurking and the CBR is reluctant to accelerate rate cuts until the population expectations of price rises relent.

The CBR decided to cut the key interest rate by 25bp at the board of directors meeting on October 27, in line with the expectations.

A more aggressive cut of 50bp would have meant that the CBR could prepare to tighten the policy again in the beginning of 2018, some analysts suggested. However, the CBR decided to abstain from an aggressive move and cut the rate by the minimum step of 25bp to 8.25%. 

Last week Alfa Bank argued that "at the moment we do not agree with the government’s concerns that low inflation is the result of the tight monetary policy of the CBR." 

The analysts that forecasted inflation easing to 2.8% in October maintained that "medium-term inflationary risks are considerable and that the CBR should thus not accelerate interest rate cuts."

However, VTB Capital previously argued that "the incoming data for October and November might nudge the Board to opt for a more ambitious cut of 50bp," while noting that "this would call for surprises from inflation reports, banking stats and economic activity data to combine into a convincing case."

The CBR expects inflation to end 2017 at 3.5-3.8%, while the Ministry of Economic Development that needs lower interest rates to help its ambitious 2.1% growth outlook expects 2.7-3.2% inflation in 2017.