Bank Rossii to hike on high inflation
Russia's central bank Bank Rossii will announce its decision regarding key rates on Friday, 31 October at 11:30 CET. We expect a 100bp hike of the key rate as the data available as of 22 October indicates that inflation has reached 8.3% y/y - far from central bank's target of 5% y/y for 2014. As of 22 October, consensus expects a 50bp rate hike.
We do not expect any significant impact on RUB's spot rate from tightening monetary policy in the medium or long run as the RUB FX rate has recently been driven by other factors as oil price, expectations of FX shortage on financial sanctions or weakening macro. As we have seen before, some strengthening on rate hikes would last for several days only. As we stay bearish on the RUB in the long run, we recommend keeping a high hedging rate, especially for USD/RUB in 6M and 12M.
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