Russia FX Beat - December 15, 2017

> Today's focus. CBR to cut 25 bps but stay hawkish, as usual.
> Global trigger: All calm. EUR/USD came under pressure yesterday. First, US retail sales data for November came in strong, supporting the Fed's upgraded view on growth in 2018. Second, the ECB retained its cautious stance.
Like the Fed a day earlier, the ECB revised upward its 2018 GDP forecast (from 1.8% to 2.3% y-o-y). But markets again chose to run with the theme of inflation being persistently below target, the ECB forecasting that it would be 1.7% in 2020, compared with the 2% target.
As expected, little has changed following this week's ECB and Fed meetings. This leaves us with our long-standing view that EUR/USD will range-trade near 1.18 into year end and then gradually climb toward our target of 1.24 next year.
Today's schedule is rather quiet. The US sees business sentiment and industrial output data. Focus will also be on an EU leaders summit where, as usual, Brexit is front and center.
> Bottom line. EUR/USD is stable. Benign risk conditions into year end should mean that EM FX outperforms DM FX.
> Regional trigger: CBR to cut 25 bps. The CBR will announce a rate decision at 13:30 Moscow time, followed by Governor Nabiullina's press conference at 15:00. Our expectation, in line with the consensus, is a 25 bp cut to 8%. Any chance of a larger cut has been scotched since the CBR refrained from offering guidance on the options under consideration, as it usually does.
The interesting part of the decision will therefore be the guidance offered by the CBR. In short, we expect another "hawkish cut," similar to the very cautious approach taken in October. We are watching to see if the wording we have seen about future moves, "option of further rate cut reductions at upcoming meetings," is retained. We will also look out for whether the regulator cites the pickup in Finance Ministry interventions set to start next year as a risk to its outlook.
In other news, the CBR announced this morning that it had placed Promsvyazbank, one of the largest 10 banks in the country, with R1.3 trln of assets, under temporary administration. The news does not come as a complete surprise.
> Bottom line. USD/RUB is well balanced just below 59, with oil prices also stable. A "hawkish cut" from the CBR would keep the local sovereign fixed-income story intact. USD/RUB should hold near to 59 today.