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RUB: vortex


Yesterday, RUB lost 2.0% against USD (46.54) and weakened 2.2% vs. EUR (58.07). The performance of crude oil (Brent closed 3.3% in red) could perhaps be given as a formal reason behind the soft price, but in our view the current trading levels of the Russian currency already price in subdued crude oil levels for the next 12 months. We highlight that surging volatility in RUB is killing liquidity and this, in turn, amplifies price swings in any direction. In particular, yesterday’s total trading turnover amounted just to USD 4.0bn, rather low by historical means. At the same time, bid-offer spreads in the USDRUB exchange spot market now stand near 5–6 kopeks. On the basis of implied volatility, RUB has become the number one currency among EM FX peers, with 1M volatility now at 26.1% (vs. 33% just a week ago). This kind of volatility spike is most likely out of the ‘three sigma’ range in any model. It is unlikely that any risk manager attached a meaningful probability to a scenario of 30% FX weakening coupled with a 400bp rate tightening. In a statistical sense, this resembles the events of 2008, which were generally regarded as a ‘black swan’. In light of this, calling anything in the FX market is quite challenging. However, were we to see a substantial offer from export next week, it could move the market substantially in its current state. Success at the CBR’s FX repo and the Treasury’s FX deposit auctions would be positive for the RUB as well.

Maxim Korovin, Tatyana Zueva
VTB Capital analyst

ruble, busket

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