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Cyprus Deal: Russia As The Main Loser

ByDanske Markets
Published 03/29/2013, 07:19 AM
Updated 05/14/2017, 06:45 AM

The Cyprus deal saw a new turn in the required conditions. It stipulates that guarantees will be made for deposits under EUR100,000, but it applies severe haircuts above that sum and introduces capital controls. We see it as a heavier loss for Russian corporations than would have been the case under the first scenario. The haircut, or 'up-front one-off stability levy' as it was called, was to be 9.99% for deposits above EUR100,000 and 6.75% for deposits below. However, a large number of accounts that are subject to the new levy plan have Russian origins. A 40-100% levy on the high worth accounts would hit capital with Russian origins the most.

RUB to gain against EUR on stronger USD
While the EUR has been losing against the USD on Cyprus deal woes, the RUB gained against the EUR. The EUR/RUB and EUR/USD have been recently moving hand in hand in the same direction. Risk-off and the escape into the USD to strengthen the RUB against the European currency can be expected. If corporate accounts suffer from strict capital control, it will be more RUB negative against the EUR as well as the USD. We do not see a significant RUB weakening against the EUR in current conditions yet. A Grexit or 'Cyprexit' would be the worst-case scenario for the EUR and RUB, pushing oil prices down and causing a significant outflow from Russia and other emerging markets.

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