High political uncertainty puts any projections on very shaky ground, to say the least. Thus, we believe that the best strategy is to wait for the dust to settle. Overall, the risk of more negative headlines coming in the near term is quite high, in our view, which would sustain the premium in Russian FX and rates for a while.
Moreover, we do not rule out that the CBR might take more steps aimed at preserving financial stability in the event of mounting pressure on the Russian currency. On the other hand, unless the Ukrainian crisis escalates further, we expect some stabilisation in the market, as huge FX intervention (we estimate the CBR might have sold near USD 8bn yesterday), combined with the unexpected rate hike, has sent a bold message to the market. In a nutshell, even though fundamentally Russian FX and rates might look interesting now, we think we might see a better entry point, as during times of political turmoil markets tend to overshoot, so probably there would be a better and safer entry point for a long trade in RUB FX and rates. Simultaneously, playing a weaker RUB and higher rates from here would be a direct play on a further substantial escalation of the political crisis, in our view.