Yesterday, RUB slipped 2.6% against USD to 63.7 amid low liquidity, as the local FX market closed for a public holiday. In our view, the main pressure on RUB came from a crude price correction: Brent closed down 2.0% at USD 58.6/bbl. NOK and NGN also slipped (1.2% and 0.5%, respectively). Further, the EM FX index weakened 0.4-0.6% against USD, with TRY down 0.9%, and BRL and MXN slipping 0.3-0.4%. Given that last week RUB outperformed its global peers, underperforming them now is not surprising, in our view. Moody’s decision to cut its sovereign rating for Russia by one notch to Ba1 also weighed on risk sentiment. A reassessment of Russia’s external balances was the main reason for the downgrade. Moody’s implies USD 270bn of net capital outflows in 2015 (vs. USD 150bn in 2014). Given USD 50-60bn of external debt redemptions, Moody's appears to assume more than USD 200bn of domestic capital outflow. This seems extreme, as it would be more than 80% of local currency term-deposits in the banking system (at USDRUB of 70, which the agency forecasts for 2015). In contrast, we expect capital outflows to moderate to USD 80-90bn as the intensity of savings dollarisation is likely to decline in an environment of stabilising devaluation expectations and high interest rates.
This week, RUB is to enjoy support from tax payments; despite export FX selling picking up last week, we believe more is in the pipeline. Meanwhile, banks on Friday secured a decent volume of FX liquidity from the CBR in repo and 312-P auctions. In total, banks borrowed some USD 11bn, USD 6.4bn of which was from the one-year repo. This week, USD 7.6bn of outstanding FX repo needs to be rolled over: if this happens, banks’ total debt to the CBR under FX lending facilities would increase to USD 40.2bn.