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After having contracted massively by 2.8% in 2015, the minus in 2016 amounted to only 0.2%. The economy looks set to recover this year and the next. But especially in view of Russia’s heavy dependence on the oil price, we are cautious and forecast only moderate growth rates of 1.3% and 2.0% for this year and the next.
The inflation rate has fallen sharply in past months due to statistical base effects and is now moving only just above the central bank’s inflation target of 4%.
The central bank has been cautious in reducing its key rate in recent months, winning more credibility. We expect the central bank to continue with its cautious approach with only moderate reductions of the key rate.
The introduction of USD purchases/sales in reaction to oil price moves is benefiting the public budget, but the effect on the FX market should be minor.
Falling interest rates in Russia and rising interest rates in the US point to a moderately softer RUB in coming Jun-17 Sep-17 Dec-17 Mar-18 Dec-18 months.
Hedging Strategy (USDRUB):
We kept urging for dollar’s hedging against ruble since March 24th, 2016, below is an instance where we’ve advocated the option strategy when underlying spot fx was trading at 68.86 then and now trading at 56.4368, please follow the below weblink for more reading on this.
Well, for now, we still like to continue with the same recommendation either long in 2m/1w diagonal USDRUB put spread or shorts in near month futures (at spot ref. 56.4368), the RUB recovery now look too extended for a put position vs. the USD as from current levels we see only contained further potential for RUB gains.
A 59.4443/52.2460 diagonal put spread is likely to fetch for certain yields of the USD notional as it edges above up to higher strikes in next 1 week or so and slides as much as possible up to maturity on longs.
The risk is dubiously unlimited in shorts, the structure should benefit from a further compression in RUB volatility in a bullish scenario.
