Russian Ruble: 1-3 Month Outlook

On July 29, CBR announced it will stop its daily FX interventions to build up its reserves due to increased volatility in the domestic FX market. The day before the announcement, USD/RUB breached 60 for the first time since March. Assuming additional depreciation, CBR is likely to soon resume its 12-month FX repo operations to stem RUB's decline, says RBC Capital Markets. 

In addition to uncertainty about CBR's next steps, lower oil prices have not been helping. Russia has two large debt repayments in September and December at USD14.1bn and USD21.7bn, respectively. 

According to RBC Capital markets, "This will increase USD demand and is likely to push USD/RUB higher as well. Lastly, a US rate hike in Sept. may increase capital outflows from Russia (CBR is forecasting USD90bn in 2015). We have raised our USD/RUB profile to account for prolonged ruble weakness, as it is expected to be result of increased uncertainty about CBR's policy stance, upcoming debt repayments, and lower oil prices. We believe CBR's recent actions have further increased uncertainty about its policy stance. We find that CBR is still juggling somewhat contradictory goals - reducing inflation while stimulating growth."

At its most recent MPC meeting, CBR cut its key rate by 50bp to 11.0%, less than its 100bp cut on April 30. According to its press release, CBR is concerned about the "cooling of the economy." RBC Capital Markets assumes, CBR's policy decisions will be increasingly determined by the level of USD/RUB.