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RUB: a depreciation spiral

Yesterday, RUB lost almost 4.0% against USD (46.67) and near 3.5% vs. the BASKET (51.70). Clearly, it was one of the worst sessions for RUB, perhaps since 1998. Meanwhile, EM FX traded on a softer footing as well; in particular, TRY and ZAR slipped 0.8-1.0%, while BRL lost 2.4%. In addition, NOK slipped 0.6% on the back of sluggish crude oil performance. However, we think RUB’s performance is not connected with global factors. Although some increase in geopolitical risks yesterday added to FX volatility, the key pressure on RUB is most likely now primarily from households, which is a self-fulfilling process. Overall, we think RUB’s 30% depreciation YTD clearly poses certain risks for financial stability, as not many will have assumed such a dramatic price action when doing their business planning, in our view. Hence, we do not rule out the CBR conducting some sizable ad hoc FX interventions in order to break the negative loop. Otherwise, RUB is set to overshoot more until the very last retail bid has been fulfilled.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

ruble, basket

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