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RUB: recovery


Yesterday, RUB firmed near 10.3% against USD to close at 61.59; during the day it traded below 60.00 for a brief period. Trading was still rather choppy given the fragmented liquidity after the spike in volatility at the beginning of the week. Total daily turnover was near USD 5.6bn, which is higher than the average daily turnover in the first half of December, but still we would expect higher flows given the magnitude of the price action. Brent crude oil gained near 1.2% yesterday and closed at USD 59.9/bbl. However, the main boost to RUB came from the regulators. The Ministry of Finance announced it was going to start selling FX in the open market to support the FX market. The Treasury has about USD 10bn of its own FX reserves, of which about USD 3.0bn is on banks’ deposits right now. Hence, MinFin could potentially spend up to USD 7.0bn in the very near term in FX interventions. Meanwhile, the combined volume of the Reserve Fund and the National Wealth Fund is USD 169bn. Furthermore, Prime Minister Dmitry Medvedev held a meeting with exporters on the selling of FX revenues. Going further, the government would be overseeing exporters’ FX selling on a daily basis. We suppose export increased the selling of hard currency already yesterday, which underpinned the stronger RUB, among other things. Also, the CBR announced a package of measures to support the banking system in the current situation, which should help to sustain the financial stability of the banking system. Separately, we highlight that the EM FX index gained near 0.3-0.6% yesterday with TRY and MXN up 1.2%, while BRL advanced 0.9%. We stick to the view that it is only the beginning of RUB’s recovery: we expect to see continued government support for the economy and financial markets, while export FX selling activity is also set to pick up in the coming days. Finally, it looks as though Brent crude oil might have bottomed out at USD 59/bbl, where we estimate a fair USDRUB at 53-54.

Finally, the FOMC meeting concluded with no change in the ‘forward guidance’ on interest rates. We had expected the phrase "for a considerable period of time" to be taken out, but that did not happen. The US equity market reacted positively, though some commentators did criticise the Fed for giving out confusing messages despite stronger growth in the US economy. An uncertain global economic outlook and lower inflation allows a dovish slant to the Fed's intentions, but the US economy is in good shape in comparison to the Eurozone and Japan. The dilemma for the Fed is ensuring financial stability without capsizing the economic recovery.

Maxim Korovin, Tatyana Zueva
VTB Capital analyst


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