Russia: Everything is aligned for more rate cuts to follow from CBR – Deutsche Bank

In view of the analysts at Deutsche Bank, everything is aligned for more rate cuts to follow from CBR and DB Economics expects another 125bp of cuts to 8.00% by year-end most likely achieved via 5x25bp.

Key Quotes

“We expect the short-end of the swap curves to rally further but the local curve to outperform XCCY. The further basis compression should be driven by the upcoming easing cycle and the lack of vol in local assets. Our 3m targets remain 8.70% in 3x6 FRAs, 8.75% in 1Y Rub (Mosprime) and 8.30% in 1Y XCCY. In bonds we keep our trade recommendations and favour bonds in the 3Y-5Y part of the curve.”

“We argue that with 10Y bonds trading only 15bp above our year-end target (7.50%), the very low term-premia on the bond curve and the high local issuances for this year, the short-end of the curve looks more attractive than the long-end of the curve. Position into either Dec-19 or May-20 both with 3m target at 7.50%.”