Russia FX Beat - December 11, 2017

> Today's focus. Quiet start to a busy week.
> Global trigger: Fed on Wednesday. This week is a busy one, and aside from the effort to pass the tax reform bill in the US, it might offer the last bit of excitement for markets before the year ends. Attention will be on central bank decisions in the US, Eurozone, UK, Switzerland and, closer to home, Russia.
In developed markets, the US decision is the most important. The Fed is certain to raise rates by 25 bps to 1.50% on Wednesday (see our preview, published earlier today). That would be the third increase this year. With the outcome a formality, investors will instead focus on outgoing Fed Chair Yellen's press conference and a new "dot plot" projection.
On Thursday, the ECB, BoE and SNB are all expected to hold their policy rates steady. The ECB will offer new quarterly economic projections, but since it decided to extend QE well into 2018 at its last meeting, little new is expected. This is all the more likely given that gains in the euro have come to a halt in recent weeks. A strengthening euro in recent months has led to concerns at the ECB about disinflation.
> Bottom line. EUR/USD is well balanced near 1.18 currently. Into year end, volatility is likely to be higher on the pound and, possibly, the yen.
> Regional trigger: CBR on Friday. In Russia, there are two major events this week. The main one is Friday's CBR decision, for which we forecast a 25 bp cut to 8%. Any other outcome would be a surprise. Although inflation is far below target and inflation expectations have come down, we doubt the CBR will change its very cautious approach, especially given that a report on expanding US sanctions is scheduled to be released at end January.
CBR Governor Nabiullina will have an opportunity to discuss the decision in her post-announcement press conference. In addition, the CBR will release a new quarterly Monetary Policy Report.
On Thursday, before the CBR decision, President Putin will hold his annual year-end news conference. It will come following his announcement last week that he would seek reelection in March. As usual, he will address a wide range of issues. Investors will be trying to glean what the future policy priorities might be.
> Bottom line. Investors are conscious of the near-term event risks for the ruble, including year-end FX liquidity issues and US sanctions. But speculative positioning data shows asset managers have a record net-long ruble position. We expect USD/RUB to hold above 59.00 today.