The Russian ruble has been able to halt its fee fall recently, aided by the Bank of Russia’s wary approach. But oil price stabilization is the primary reason. However, a tough task is still being faced by the Russian central bank. Even if the real economy is being aided by the central bank’s rapid rate cuts, real yields should not become unappealing to the market.
Hence the Bank of Russia has to make sure that any reduction in rates is seen as appropriate. Rapid reduction in rates might set off renewed outflows of capital. Last year capital outflows dropped considerably as compared to 2014. It was even lower than the current account surplus. Russia recorded the lowest outflows in Q1 2016 since 2007.
Russia need not be concerned about financing issues if the US Fed hikes rates, in contrast to several other emerging market nations. The nation still registers current account surplus and hence does not rely on capital inflow from abroad. Last year Russia registered a surplus of around 5% of GDP, while it is likely to post another meaningful surplus in 2016.
Nonetheless, increased inflation points and the economic issues indicate towards depreciation of the ruble against the US dollar. The RUB is also continuously pressurized by the oil price. An oil price rally and a possible end to the sanctions might comprise the scenarios required to create a possibility for a rebound. This indicates that severe losses and gains accounted recently should not continue. Hence, the ruble is expected to continue on its path of weakness, said Commerzbank in a research note.
