Ruble likely to remain under pressure on economic challenges, high inflation

Capital flowing out of Russia has decreased markedly in recently times. Last year, outflow of capital from Russia had reached just USD 58 billion. This was just one third of the level registered in 2014. The capital flowing out of Russia in the first half of 2016 reached USD 10.5 billion. This is almost equivalent to the surplus in the current account, said Commerzbank in a research note.

In contrast to several emerging markets, Russia need not be concerned about financing issues when the US Fed hikes its interest rates. Russia continues to enjoy a current account surplus and thus does not rely on inflows of capital from abroad. Russia had recorded a surplus of around 5 percent of the GDP last year. The nation is expected to post another considerable surplus in 2017 too.

Overall, the economic challenges and increased levels of inflation indicate towards additional losses in ruble against the USD. The price of oil also continues to be a challenge. However, depreciation of the Russian ruble is unlikely to see the levels witnessed during the beginning of 2016. A likely end of the sanctions and increase oil prices might make up the scenarios that would possibly create a potential for a recovery, according to Commerzbank.

“Neither the extreme gains recently nor the rapid losses before that are likely to continue. We therefore consider a path of continues ruble weakness to be likely”, added Commerzbank.