Forecasting Overnight Indexed Swap Quotes via Central Bank Averaging Periods Schedule in Russia

This paper is focused on the forecasting of the short-term ruble liquidity. With relatively high accuracy it is possible to forecast the RUONIA/Key rate basis, which is proposed to be the reflection of the liquidity conditions in Russia. The time series model with exogenous variables will be proposed for the basis forecasting, which will be calibrated on the historical data, checked, and compared with naïve model. The forecast depends on the autoregressive lags of the basis including the seasonal adjustments, on the similar cross-currency/key rate basis, on the tax period dummy variable and on the over/underaveraging dummy. The choice of the variables and the Russian money market fundamentals are described in the paper and the consequent results of the model with corresponding model metrics can be found in the chapters. The result of the paper is the sustainable model that consistently outperforms the naïve ARIMA models’ results. It can allow the market participant to switch from the Russian key rate curve, to RUONIA term structure and vice versa, given the RUONIA OTC overnight index swap quotes, imply the market expectations of the key rate behavior.