Yet another ruble sell-off...
The Russian ruble experienced yet another sell-off this week. The USD/RUB lost around 3.5% while EUR/RUB lost over 4%. Furthermore, Russian credit risk increased sharply in recent weeks, which probably make the ruble fall even more sharply. The Russian central bank (CBR) has intervened at least once to defend the ruble this week, selling USD700m. Overall, interventions are not helping to support the ruble sustainably as the falling oil price is dragging the currency down. We find it hard to believe that they can stabilise the ruble, at least not as long as the oil price plummets.
The economic costs of defending the currency are significant and not sustainable. Furthermore, comments from Russian officials, and from President Putin, do not help to calm down the Russian markets. Mr Putin called for 'harsh' measures to fight the ruble 'speculators', but he did not specify the instruments. Given his comments, we clearly cannot rule out currency and capital controls to some extent, but we maintain the view that the Russian central bank is in general against any kind of capital and currency restrictions. That said, it is becoming clear that the political pressure on the central bank is rising and the CBR is under pressure to stabilise the ruble, which could become very costly for the economy.
So should we expect more ruble weakness? We continue to think that despite the rising speculation about the health of the Russian banking sector and geopolitical concerns, the oil price collapse is mainly to blame for the ruble's weakness. Hence, as long as we do not see any stabilisation in oil prices, it is hard to say that the ruble slide is over.
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