Yesterday, RUB opened in an optimistic mode appreciating to 37.95 vs. BASKET and 32.55 by the mid-day. We consider that tax-related flows and long hard currency market positioning (after US tapering announcement) have been the main reasons for fast RUB appreciation in the last days. Moreover, we consider that some market players started to pre-position for the strong seasonality in 1Q14 in line with our expectations published in our Fixed Income Outlook: After the fall.
At the same time, RUB has outperformed other EM peers by 2.3% since the late November and we consider that RUB appreciation should be limited in the coming weeks unless the demand for EM risk re-emerges again. Moreover, the CBR announced that it moved the dual-currency band to 33.0-40.0 implying there is no support for RUB from the CBR below 38.05. Yesterday, the CBR also highlighted again a gradual reduction in FX interventions is one of the main targets for the regulator. Hence, if RUB holds in the no intervention zone for some time, i.e. a few weeks, then the market may expect another step aimed at increasing RUB flexibility.