The Russian central bank cut its policy rate by 200 basis points to 18.0%, which was expected due to recent declines in inflation. However, the bank remains cautious, citing ongoing inflation risks tied to high inflation expectations, a tight job market, and tough trade conditions. Governor Elvira Nabiullina noted that inflation is still above the target at 9.2% year-on-year. She attributed the current drop in inflation to temporary factors and indicated that the recent rate cut does not mean a long-term easing of rates; future decisions will be based on data.

Economic Forecasts And Currency Outlook

Forecasts indicate another potential rate cut of 100 basis points at the next meeting. Inflation estimates for 2025 are revised to 6.0-7.0%. Projections for GDP and consumption remain the same, but external factors have worsened due to falling oil prices and a declining surplus. The outlook for the Rouble is expected to weaken against the USD and euro over the next year. Although the currency rallied in February 2025 due to political optimism, it has mostly stabilized since, with slight weakening after the rate cut and forecast updates. We view the 200 basis point rate cut as a tactical decision rather than an aggressive easing move. The bank’s cautious stance about inflation risks suggests that traders should be careful about assuming a series of cuts. This indicates it’s wise to hold off on long-term bets for lower interest rates for now.

Market Strategies And Derivatives

The governor’s concerns are backed by current data, as Russia’s unemployment rate dropped to a post-Soviet low of 2.6% in April 2024, increasing wage pressures. Additionally, weekly inflation data in early June showed a slight rise to 0.17%, emphasizing that disinflation is fragile. This reinforces the need for a cautious, data-driven approach for future rate decisions. With a possible 100 basis point cut expected at the next meeting, tactical trading with short-term interest rate futures could be a good strategy. However, using options to bet on volatility may be smarter than taking a clear stance on a prolonged easing cycle, given the central bank’s uncertainty. A weaker Rouble offers good opportunities for derivative traders. We suggest considering call options on the USD/RUB pair, currently around 89, to take advantage of the expected decline while minimizing downside risks. The recent slight weakening after the rate cut supports this viewpoint. External factors are worsening, with Urals oil prices falling below the $70 per barrel level assumed in the state budget, adding pressure to the negative currency forecast. Historically, when the Russian current account surplus shrinks—over 60% year-on-year in the first five months of 2024—it consistently affects the Rouble negatively. This trend suggests that betting on a weaker currency is a historically sound strategy. Create your live VT Markets account and start trading now.

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