Another day with RUB in free-fall. RUBBASK is at 39.35 (with an intra-day low at 39.40) and USDRUB is at 33.95 (briefly touching 34.0 in the mid-day), i.e. plummeting another 0.4-0.5% in a day. YTD, RUB continues to weaken against other EM currencies, down 0.5-1.0% on average, however, it has behaved in line since mid-December. In our view, the activity in RUB is related to a reduction in local sovereign bond holdings and the subsequent coverage of short USD and BASKET positions by local market players. Thus, the FX turnover was quite high: about USD 6bn in MICEX with (T+1) settlement. RUB looks to be an overshoot at these levels, as the CBR starts selling USD 400mn above 39.35-40, i.e. around USD 6-8bn on a monthly basis.
Nevertheless, with EM under constant pressure and their currencies refreshing multi-year lows almost every day, RUB looks to be one of the easiest victims supported by the mix of monetary and FX policies. Some regulators (like in BRL and TRY) are defending their currencies by raising rates and making constant interventions, while the CBR is reducing its participation in the FX market, the population’s confidence in banks is shaken and the Ministry of Finance might purchase up to USD 6bn in the open market. However, the bulk of these actions look to be priced in at these levels, i.e. around 39.35-39.40, in our view, and the support from positive C/A balance (albeit declining to USD 18-20bn in 1Q14) and the tourist inflows during Olympic games (up to USD 2-3bn) are still ahead in time.