Yesterday, the CBR announced further changes to its FX intervention mechanism.
The no intervention zone was widened to 37.35-42.45 (from RUB 3.1 to RUB 5.1) and the area with the $100mn interventions was eliminated.
The amount of daily target interventions in the remaining sub-bands was reduced USD 100mn to USD 200mn. Thus, the CBR is to sell USD 200mn daily in the range of 42.45-43.40 and buy USD 200mn daily in the range of 36.40-37.35 (instead of USD 300mn).
The accumulated volume of interventions required for a 5-kopek shift of the RUBBASKET band was reduced from USD 1.5bn to USD 1.0bn.
This step was expected and coincides with the CBR’s goal to implement a fully-fledged inflation targeting framework by 2015. The regulator is likely to continue adjusting its intervention framework and we see a good chance of level-based interventions being completely eliminated sooner rather than later.
Given that since early May RUBBASKET has been trading deep inside the no-intervention sub-band, we believe that the news is neutral for the FX market. For liquidity, the decision is likely to be positive - to recap, interventions sterilised near RUB 1.7tn between January and mid-June.
As for the rouble outlook, even though the summer period is seasonally not beneficial for the local currency (tourism and dividends), this year we expect that tourism factor to be much milder (due to poor income growth and a cooling labour market). Also, the oil-factor might be of help. So, unless there is an external shock (another round of geopolitical tensions, for example), we believe that USDRUB will gravitate towards the 35.0-36.0 range.