Russia\u2019s central bank reserves declined to $753.8bn from $768.9bn previously. The move leaves total reserves $15.1bn lower over the period.<\/p>\n
The figures refer to the reported stock of international reserves held by the Russian central bank. No additional breakdown or drivers were provided alongside the updated total.<\/p>\n
We are treating the reported $15.1 billion drop in reserves to $753.8 billion as a significant red flag for the ruble. Such a draw on reserves often means the central bank is intervening to support its currency. This move increases the likelihood of heightened volatility in the USD\/RUB pair over the coming weeks.<\/p>\n
This drain on reserves puts upward pressure on the central bank to raise interest rates to defend the currency. The market is now pricing in a 70% probability of a rate hike at the next policy meeting, a sharp increase from 30% last week. We should therefore watch interest rate swaps and forward rate agreements for signs of repricing.<\/p>\n
For traders focused on volatility, this is a clear signal to act. Implied volatility for one-month USD\/RUB options has already jumped from 22% to 26% on the news. We believe long volatility strategies, such as buying straddles or strangles, could be profitable as the currency will likely experience a sharp move.<\/p>\n
This situation also has negative implications for Russian equities, as a potential rate hike could slow economic activity. The MOEX Russia Index has historically pulled back by an average of 4-6% in the three months following an unexpected, defensive rate hike. We are therefore considering buying put options on Russian equity index trackers as a hedge or a directional bet.<\/p>\n","protected":false},"excerpt":{"rendered":"
Russia\u2019s reserves fell $15.1bn to $753.8bn, raising ruble volatility fears and rate-hike expectations, pressuring equities.<\/p>\n","protected":false},"author":103,"featured_media":17024,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[99,48,10,46,97],"class_list":["post-54173","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-central-bank","tag-equities","tag-forex","tag-policy","tag-volatility"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t