The Russian central bank (CBR) has allowed the rouble to float increasingly freely since 2008-09 in a widening trading range. This week the CBR allowed the rouble to float freely.
We take a close look at this new regime and the impact on the rouble. We believe that, given the close relationship between the oil price and the Real Effective Exchange Rate for the rouble, the sharp drop in the oil price in the past few months has been a major factor behind the (renewed) rouble sell-off, both in real and nominal terms.
The rouble has sold off heavily and the question is whether the sell-off can go even further or if we are close to a buying opportunity. We think that the rouble is getting cheaper but not yet undervalued. Given our view that the oil price is likely to bottom in the coming months and will start to recover in line with a continued pick-up in global growth in 2015, the rouble is likely to get increasing support from a higher oil price throughout 2015. This should help reduce the pressures on the rouble in the medium term.
Our new USD/RUB forecast is therefore 49, 51 and 51 on three-, six- and 12-month horizons. Overall, this is slightly more negative than forwards on a three-six month horizon and fairly 'neutral' on a 12-month horizon.
To Read the Entire Report Please Click on the pdf File Below