Minsk 2.0: Not a game changer for the Russian rouble

• The 16-hour Minsk talks have ended, adopting new measures.\

• The headline-driven RUB market returns to pre-talks mode.

• We keep our view on the RUB unchanged, as we do not expect any major support from macro figures in 2015.

Assessment and outlook

On 11 February 2015, the leaders of France, Germany, Russia and Ukraine gathered in Belarus’s capital Minsk to negotiate stabilisation of the situation in Ukraine. Following 16 hours of talks, a list of measures to stabilise the situation has been agreed. This is what we know to date.

• There will be a ceasefire in certain areas of the Donetsk and Lugansk regions of Ukraine, with strict implementation starting at 00:00 (Kiev time) on 15 February.

• Both sides will withdraw all heavy weapons from equal distances in order to create a security zone of at least 50-140km from each other for artillery and tactical missile systems. Withdrawal of heavy weapons should begin no later than the second day after the ceasefire and be complete within 14 days.

• The OSCE will ensure effective monitoring and verification of the ceasefire and that the withdrawal of heavy weapons begins on the first day of the planned withdrawal.

• On the first day after the withdrawal, a dialogue will begin on the terms of local elections in accordance with Ukrainian law and the Law of Ukraine ‘on temporary procedures for local government in certain areas of the Donetsk and Lugansk regions’.

• Immediately, not later than 30 days from the date of signing of the agreement, the parties will adopt a resolution of the Verkhovna Rada of Ukraine marking the territory covered by the special regime.

• The parties will provide pardons and amnesties through the enactment of a law prohibiting the prosecution and punishment of persons in connection with the events that took place in some areas of the Donetsk and Lugansk regions of Ukraine.

• A release and exchange of hostages and illegally detained persons based on the principle of ‘all in all’ must be completed no later than the fifth day after the disengagement.

• Secure access, delivery, storage and distribution of humanitarian assistance to the needy must be provided supported by an international monitoring mechanism.

• Terms must be determined for full restoration of socioeconomic relations, including transfers, such as pensions and other payments (receipts and income, timely payment of all utility bills, renewal of taxation within the legal framework of Ukraine).
  To this end, Ukraine will regain control of the part of its banking system in conflictaffected areas and will probably establish an international mechanism to facilitate such transfers.

• The government should restore full control over the state border of Ukraine throughout the conflict zone, beginning on the first day after the local elections, and should be completed after a comprehensive political settlement (local elections in some areas of Donetsk and Lugansk regions on the basis of the Law of Ukraine and constitutional reform) by the end of 2015.

• All foreign armed forces, military equipment and mercenaries from the territory of Ukraine are to be withdrawn under the supervision of the OSCE, with the disarmament of illegal groups.

• There should be constitutional reform in Ukraine, coming into force by the end of 2015, with a new constitution, intended as a key element of decentralisation (taking into account the characteristics of certain areas of the Donetsk and Lugansk regions, agreed with representatives of these areas), and adoption of the permanent law on the special status for certain areas of the Donetsk and Lugansk regions.

Headline driven market returns to the pre-negotiations mode

Before the talks in Minsk began, the rouble market switched from ‘the oil mode’ into a ‘headline driven’ one. After today’s opening the rouble entered the ‘red zone’, with a sharp fall of 3.5% against the USD, but corrected on the first news of the agreement on a ceasefire. Despite much positive news from the negotiations in Minsk, we do not see the new deal as a game changer for the rouble market and Russian assets in the medium term. Autonomy for the Donbass region or Ukraine’s federalisation has not been agreed on (backed by Russia) neither is the situation returning to that pre-crisis (backed by Ukraine).

We consider that the geopolitical situation still remains fragile and believe the rouble continues to be mostly oil price driven, returning to 66-67 against the USD at Brent at USD56/bl. Thus, we keep our view on the rouble unchanged, as there is no major support from Russia’s macro figures visible for 2015.