The Russian central bank is thinking about lowering interest rates if inflation goes down. However, it might keep the rate at 18% for the rest of the year because of ongoing geopolitical risks. A high-ranking official from the bank indicated that if inflation falls quickly, the rate could decrease this year. However, the bank’s outlook also suggests that the rate might stay at 18% until the end of the year.

Geopolitical Factors

Geopolitical issues remain a concern, potentially causing inflation to rise. The bank is careful about these inflationary risks, which affect its interest rate choices. The Russian central bank is sending mixed messages, creating a unique opportunity in the derivatives market. They hinted at a possible rate cut, but may also maintain the 18% rate because of ongoing risks. This uncertainty is something traders need to pay attention to in the upcoming weeks. Recently, inflation in Russia has improved, with July 2025 figures showing a drop to an 8.5% annual rate, down from over 11% earlier this year. This supports a potential rate cut since the central bank has noted that lower inflation is necessary for a more relaxed policy. However, a rate cut might put short-term pressure on the ruble. Yet, the geopolitical situation is still a significant risk that could lead the bank to keep rates high to protect the currency. Ongoing talks about tightening energy sanctions have kept the markets on edge. In 2022, the central bank quickly raised rates to stabilize the ruble, reminding us of how rapidly they can act.

Market Volatility

This uncertain outlook is causing increased price volatility. One-month implied volatility for USD/RUB options has surged to over 35%, a jump from the low 20s just a month ago. This increase shows that the market expects considerable movement for the ruble, but is unsure which way it will go. Given this high volatility, traders might want to explore strategies that benefit from significant price changes in either direction. Buying option straddles or strangles on the ruble could be effective, as they would gain from either a surprise rate cut or a geopolitical shock causing a sharp move. The current pricing indicates that a period of calm is not likely. For those focused on interest rates, this uncertainty offers clear opportunities. Traders are engaging in interest rate swaps that would profit if the central bank keeps rates steady at 18% through the end of the year. Others, however, are betting on a series of cuts starting as soon as the next meeting. Create your live VT Markets account and start trading now.

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