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Fed Rate Cut Odds Rise as December Decision Looks Increasingly Divided 
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In upcoming Russian monetary policy meeting, the CBR to remain on hold at 10%. Recent CBR rhetoric has been fairly cautious and we don’t think the CBR would act at a non-core meeting (the next core meeting is in March). Rapid disinflation and currency strength favor more dovish rhetoric in the statement.
However, the launch of FX interventions and hence a risk of a weaker currency, and also relatively strong economic performance in H2’16, suggests that the CBR may preserve its hawkish stance. We expect the next cut in June 2017.
Pay 1-year xccy swap, go long USD/RUB or buy 1x1 USD/RUB call spreads
With FX interventions now confirmed to commence in February, we think Russian local currency assets are ripe for a short-term repricing and positioning clear out from stretched levels.
We view any repricing and positioning unwind as being tactical, as the structural story for Russian local currency assets still looks constructive.
Rates: We recommend paying 1-year xccy swaps, targeting a yield of 9.00% from 8.64% (indicative). The xccy was already pricing in an aggressive policy rate cutting cycle this year, and these expectations should moderate as we think the CBR is likely to stay near-term cautious as the currency reprices.
Alternatively, buy 2m USDRUB 1x1 61.0/63.5 call spreads indicatively offered at 1.26% premium (3 times leverage, spot ref 60.00). For the purposes of our Trade Tracker, we include both of these FX trade expressions.
