Russia FX Beat - February 12, 2018

> Today's focus. Quiet day. CBR statement to 25 bp cut dovish.
> Global trigger: Signs of stability. US equity markets closed on a positive note on Friday, the S&P 500 up 1.5%, after a tumultuous week. This has fed into today's Asia session, although Japan is closed for a holiday.
This week the focus will no doubt remain on US markets and related volatility. Data-wise, the focus will be on Wednesday, which sees January retail sales and CPI from the US. The latter, in particular, will be watched given that signs of rising inflation were a key trigger for the recent market turmoil.
Today, President Trump is due to release his budget proposal, including a $1.5 trln infrastructure plan. There is talk that an aim to balance the budget within 10 years might be abandoned. This could put pressure on USTs. The 10y yield recovered last week and is now edging nearer to 3%.
> Bottom line. Today's data schedule is empty. EUR/USD tested support at 1.22 last week before returning higher. It should hold near 1.23 today.
> Regional trigger: Dovish CBR statement. Moscow Exchange turnover was again high on Friday, exceeding $7 bln. Exporters sold a lot of FX, but not enough to offset broad dollar strength and a 3% fall in the oil price. At the end of the day, the ruble was flat. This morning, the ruble gained 0.7%, breaking below 58. Global risk aversion is calming.
Large local tax payments are nearing: in March, yearly profit taxes are due. Overall, this creates conditions for the ruble to strengthen to 55 by end 1Q (see "Ruble - A Year of Two Halves," published on February 8).
On Friday, the CBR cut its key rate 25 bps to 7.50%, as we expected. The press release was very dovish. For the first time the CBR described inflation as "sustainably low" instead of "near the target." It also said that it would complete a transition to neutral monetary policy this year. So, we expect it to cut the key rate another 100 bps this year - 25 bps every quarter.
Preliminary January balance of payments data showed the current account surplus soaring to a six-year high of $12.8 bln. FX liquidity may have risen up to $7 bln. This is decent growth that will likely continue in February-March, as oil prices are still high. We expect the FX liquidity situation to finally normalize soon.
> Bottom line. USD/RUB to settle below 58.