RUB: premium to EM FX is back at 10%
Friday's price action in the Russian exchange market was on a softer footing throughout the session. At the end of the day, RUB lost 0.85-0.90% against both USD (36.04) and BASKET (42.26). Despite the clearly weak dynamics, we highlight that RUB FX stayed in the CBR's first intervention band (i.e. that in which the regulator sells USD 102mn daily; the initial USD 200mn is adjusted for the Ministry of Finance’s FX purchases), which is positive for both liquidity and sentiment, in our view. Nevertheless, RUB markedly underperformed EM FX peers and its YTD performance gap vs. the average EM FX index has climbed back up above 10%. Clearly, the news on S&P's downgrade of the Russian rating, coupled with the general slippage of EM FX and risks of further political volatility, were the main drivers behind RUB's depreciation. Meanwhile, the CBR's unexpected rate hike (see below) provided temporary relief in the FX market: hot on the heels of the CBR's announcement, RUB gained 10-15 kopeks, but surrendered all the gains in the next couple of hours before closing lower than it was before the rate hike. Looking forward, the balance of power is not building in the UB's favour in the near term: the tax period ends today, May's public holidays are likely to produce additional demand for FX and political uncertainty remains. Hence, we do not rule out RUB printing fresh lows relative to EM FX peers in the coming days.
Maxim Korovin, Anton Nikitin
VTB Capital analyst
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