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RUB Rebounds after Biggest Decline in 6 Weeks

27.01.2017

Bloomberg

By Vladimir Kuznetsov

The ruble strengthened 0.2% vs dollar to 60.3450 after the biggest daily decline in 6 weeks, as oil prices rose.

Rebound comes after drop triggered by the Finance Ministry’s announcement of a new FX policy that envisions regular purchases of foreign currency;

Policy may increase rather than reduce RUB volatility, Sberbank CIB economists led by Anton Stroutchenevski say in research note.

Investors will “inevitably” calculate where RUB will be month ahead following intervention announcements, looking for arbitrage opportunities

Authorities expect USD/RUB to reach 64 by year end, even deeper depreciation is possible

Bank of Russia will have to “print” RUB to purchase FX. “Interest rates would therefore remain high, reducing the country’s economic growth potential”

Russia may suspend FX interventions in case of major RUBweakening. Potential $15b-$20b in FX purchases this year account for nearly half of expected current-account surplus.

Announced mechanism also envisions that even with flat oil prices purchases accelerate in case of RUB weakness, Bank of America analyst Vladimir Osakovskiy says in research note

Morgan Stanley moves expected date of Russia rate cuts resumption to June 16 from March 24

New FX policy will lead to weaker RUB; recommendation to reduce exposure stays intact. Not recommending to outright short RUB as “continued cautious monetary policy will provide an anchor”. Recommend increasing FX hedging in OFZ positions, Morgan Stanley analysts led by Alina Slyusarchuk says in research note

Generic 10-year OFZ bond yield steady at 8.28%, +21bps for the week

February 2019 OFZ bonds yield +11bps to 8.24%, close to erasing year-to-date gains

Brent crude rises 0.2% to $56.34/bbl; Brent in rubles little changed at 3,392 vs 3,051 average for last 12 months