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CBR (Central Bank of Russia) kept its benchmark rate on hold at 7.5% on Friday as was widely expected. The statement was little changed and reiterated that future tightening will depend on growth and inflation relative to target of course, but also on external risk.
The call for the next 25bps rate hike to come on 14 December has been based on a view of normalising global monetary policy, which would exert some pressure on the ruble, and also the prospect of harsh US sanctions. Last week's statement gives us every reason to think that under such a scenario, CBR would indeed hike rates.
Nevertheless, the probability of such a scenario is declining. A sell-off in world markets combined with bad news from the euro zone may put a question mark on the pace of monetary policy normalisation. Similarly, the prospect of US sanctions against Russia appears less clear now than was a month ago when high-profile poisoning and hacking revelations were made. The US midterm elections have intervened and it is not clear that the pre-existing sanctions agenda will resume afterwards. Growth and inflation data have meanwhile been softer over the past month and the oil price has corrected lower – which means that CBR's inflation forecast could also edge lower in the next assessment.
All in all, the likelihood of another rate hike this year is falling. Except in the scenario of stronger US sanctions coming in November and pressuring the ruble, it is difficult to foresee another hike for now.
Buy 3M USDCAD 25D call vs sell USDRUB 25D call, in 1.8:1 vega. Oil hedged EM – DM vol compression RV with NAFTA edge.
At spot reference: 65.634 levels, 06-Nov-18 USDRUB 1x1 put spread (67.057/64.14) is advocated. Courtesy: Commerzbank
Currency Strength Index: FxWirePro's hourly USD spot index is inching towards 130 levels (which is bullish), while articulating (at 14:44 GMT). For more details on the index, please refer below weblink:
