Further TRY, RUB and BRL depreciation likely

10y inflation breakevens have jumped 50 basis points in the aftermath. The RUB has continued depreciating more or less in line with oil price declines. Besides the effect oil prices have on the RUB equilibrium value, the effect on Russia's fiscal picture implies a looser monetary policy stance, leading to higher inflation and a weaker currency. 

"Further adjustment is expected in EMs that have had sharp declines in recent months due to developing idiosyncratic stories, such as the TRY, RUB and BRL. Further depreciation of USD/TRY towards 3.05 by year-end 2015 is likely, driven by the still overvalued multilateral exchange rate (with a large EUR weight), large external financing needs, continued political turmoil and tacit government approval of currency depreciation", says Barclays.

On the last item, the recent depreciation of the exchange rate and sell-off in TRY bonds following the CBT's announcement of its simplified monetary policy framework is consistent with market concerns that it remains too focused on growth risks and open to political pressure, rather than addressing inflation. 

"Although the pace of RUB depreciation may slow, a reversal is unlikely and it is expected to reach 73 by year-end", added Barclays.