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RUB: small bounce

Yesterday, RUB firmed 0.3% against USD (39.83) in a rather choppy trading session. In the morning, pressure on RUB mounted and so the CBR had to intervene again, and we think the regulator moved the top end of BASKET’s range to 44.60 (+10 kopeks). Thus, the amount of FX interventions was likely near USD 700mn. At the end of the day, BASKET closed at 44.50. Meanwhile, we highlight that the EM FX index appreciated 0.7-0.9% against USD. In particular, ZAR and TRY gained near 1.2%, while BRL continued rallying (+1.3%). Therefore, RUB’s performance gap with EM peers widened a little more yesterday. Meanwhile, yesterday we published a separate report, How to Play on the CBR? - Sell USDRUB and Pay 12M NDF, with the recommendation to sell USDRUB and pay the 12M NDF rate. In our view, one should not shrug off the probability of the CBR responding to current FX volatility. In addition, we highlight that this time one thing was different compared to previous episodes of RUB selling off – the correlation between the FX spot and money market rates has broken. Hence, the deficit of US dollar liquidity in the Russian interbank market, spurred by the lack of access to international capital markets, was the determining factor behind the low overnight FX swap rates. Subsequently, RUB’s 3M NDF rate has tightened near 115bp over the last three months, the largest decline among all EM peers. On a carry basis, RUB now trades closer to ZAR and INR, lagging TRY and BRL. However, given the lack of capital inflows into Russia, RUB’s balancing carry level should be higher, in our view. Overall, we expect RUB FX and rates to become more balanced in the coming weeks, which might be due to stronger FX and/or higher interest rates.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

ruble, basket

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