Ruble may slip further as CBR’s tripartite framework adds more pressure

In our view, the Central bank of Rsussia should consider a proper communication channel for its monetary policy as required by the inflation targeting regime. The finalized monetary policy transformation created certain constraints with regard to sharp key rate moves, though the emergent hike was not avoided. No matter how hard it would be to implement.

In particularly, difficulty in tripartite framework (interest rate, exchange rate & inflation) can hardly be managed efficiently and requires a gradual exclusion of the exchange rate from the tripartite circuit.

The CBR will hardly elaborate on medium-term exchange rate targets and will not try to incorporate ruble exchange rates directly into its policy response function, as that would aggravate anchoring inflationary expectations. The underlying drivers of ruble appreciation are abundantly cheap FX liquidity.

Hence, we think managing FX liquidity provision conditions can help the CBR to separate its medium term goals from the general monetary policy and the 150-200 bps tightening of relevant FX rates since mid-March lends further credibility to our expectation of only a 100 bps cut to the key ruble denominated rate on 30 April.

Technical watch:

On daily chart back to back bearish shooting star candles occurred on short term upswing which is displaying a long upper shadow and its small real body is at or near the lows of the session. RSI (14) also gives an early signal of divergence with price curve. Overall, a short term fall in this pair is expected certainly until it seeks strong support at levels around 49.7928. One can see shorting chances here.