The market has found a fresh reason for a further sell-off in EM currencies: Syria-related caution. RUB renewed more than 12-month lows, moving to 38.25 vs. BASK and 33.50 vs. USD. It was down 0.3% vs. BASK and 0.4% vs. USD, but this outcome was the best in EM currencies: TRY lost 1.95%, INR weakened 0.9% and ZAR moved 0.8% lower. BRL was the only currency that performed well, probably supported by massive interventions from the regulator in the FX market. Furthermore, we note the CBR governor’s comments about the FX market, highlighting the regulator’s dedication to more RUB volatility on the way to inflation targeting. We do not believe that this comment should be considered as a short-term guidance to band widening in the coming months, although that could happen at some point.
Rather, we think of the change in the intervention mechanism as a whole, because the recent EM sell-off showed that the CBR FX intervention mechanism is prone to inertia and adjusts to global market conditions slowly. Thus, the cumulative volumes of FX interventions seem substantial (to recap, the CBR has already sold around USD 14bn from the reserves). In our view, the mid-level of the operating band is much stronger from the ‘fair’ RUB level, even after the 50 kopek shift in the band and the CBR’s interventions are going to be skewed to the selling side in the near future.
Maxim Korovin, Anton Nikitin
VTB Capital analyst
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