Russia rate hike on cards as rouble falls
On Friday, the Russian currency hit new historic lows against the US dollar. Technically, the CBR will have to intervene only when the ruble falls close to the RUB39/$ level, but before doing so, we think the bank will first opt to hike its interest rates again, possibly even as early as this week.
- Ruble weakness mostly on a major rise in geopolitical risk:
o Ukraine leaders claim that thousands of Russian troops are fighting in south-eastern Ukraine, a claim rejected by Russian officials
o In response, Western nations have started to discuss the introduction of new sanctions against Russia
- Other reasons for the ruble’s weakness include:
o Softer crude oil prices with Urals blend balancing at $100/bbl mark
o Seasonality – demand for RUB falls after tax payment season ends
- CBR unwillingness to spend FX reserves – in line with the announced shift to RUB free-float – has added to the ruble’s woes
Vladimir Tikhomirov is chief economist at BCS Financial Group, the largest broker of securities on the Moscow Exchange.