USD/RUB highly volatile (Monthly Outlook, 1-3)

CBR's monetary policy decision on Sept. 11 will be determined by the level of the exchange rate and headline inflation. On Aug. 26, CBR Deputy Governor Nabiullina stated, "The most important for us now - is that dynamics of the exchange rate have a minimal impact on price growth" (Vedomosti, translated). 

In the past month, USD/RUB has come close to reaching its all-time high of 79 on Aug 24. Since then, it has retraced part of this move, but it remains well above the level at which CBR cancelled its daily FX interventions (Jul. 29 USD/RUB = ~60). Since then, USD/RUB behavior has been increasingly driven by oil prices. The 3M correlation dropped to -0.96 from -0.87 in that period.

"CBR is expected to skip a rate cut on Sept. 11 if USD/RUB continues remain above 66 because the latest inflation data was higher than expected. Since mid-July, weekly inflation has ranged between 0.0% and 0.2%. Aug. inflation surprised to the upside at 15.8% y/y. However, as long as inflation does not spike unexpectedly, CBR is likely to return to easing because 2016 inflation forecasts are 7-7.5%", says RBC Capital Markets.