USD/RUB likely to trade around 59 by end-2017 - Lloyds Bank

Decline in crude oil prices in the last month coincided with a move higher in the USD/RUB pair, noted Lloyds Bank in a research report. Still, the correlation between the two has not been one for one. The combination of easier monetary policy and the requirement to rebuild both foreign exchange and central government reserves are expected to push the currency pair higher, even if crude oil prices recover eventually.

Even if the Russian finance ministry has pulled back on the size of foreign exchange purchases, it also reflects less of a requirement to intervene because of relaxed market purchasing pressures, stated Lloyds Bank. However, relaxed intervention comes as the Central Bank of Russia lowered the key rate further by a 25 basis point to 9 percent.

Moreover, the CBR hinted its intention to further loosen monetary policy at its next meeting in June. The central bank’s guidance continues to show that the “neutral” interest rate for the economy lies between 2 percent and 3 percent. Therefore, the risks are skewed to more aggressive easing of the policy in the near future.

“We forecast USD/RUB will end the year at 59.0”, added Lloyds Bank.