New Europe Weekly
0
0
The Russian central bank treads a dangerous path
Fri, Nov 28 2008, 16:27 GMT
by New Europe/EMEA Research
Recently there has been a lot of debate in the media about possible rouble devaluation. Anticipation of a weaker rouble is connected to lower oil prices (which is weakening Russia's external balances), worries over Russia's large external debt levels, and greater political risk after the Caucasus crisis.
So far the rouble has been remarkably stable in 2008. Against its dual currency basket (55% USD and 45% EUR) it has only dropped roughly 4.5% this year - see chart one. Further, the rouble has outperformed other commodity currencies since the beginning of August, when commodity prices peaked - see chart two.
However, with oil prices below USD 50 a barrel and Russia's inflation above 14% y/y, we believe the rouble is significantly overvalued at current levels. The Russian authorities know this, which is why the Russian central bank (CBR) on three occasions over the last couple of weeks widened the basket/RUB trading band by 1% each time - de facto devaluations. The latest action was this morning when the basket/RUB went from 31.00 to 31.30.
Meanwhile the CBR this week warned market participants not to speculate on rouble devaluation. More specifically, the CBR urged banks not to increase their foreign currency longs in December, as it hinted that such moves could affect the banks' abilities to participate in the CBR's collateral-free auctions.
In our view, it isn't constructive to try and force market players not to hedge their exposure towards a weaker rouble. Indeed, such a move could easily increase pressure on the rouble, as foreign market participants might view this as a step towards a more protectionist direction, thereby pushing risk premiums up further and generating more distress on Russian financial markets. Instead, we believe it would make sense to move more quickly with the devaluation process in order to remove mounting speculative pressure on the currency, rather than distort market participants' decision making.
Published on Fri, Nov 28 2008, 16:32 GMT
Archive
- Balkan politics - uncertainty on the rise
Published On Fri, Jul 3 2009, 13:25 GMT - Contagion - should we worry about it?
Published On Fri, Jun 26 2009, 14:39 GMT - Uncertainties building up in Russia
Published On Fri, Jun 19 2009, 12:47 GMT - Painful rebalancing ahead
Published On Fri, Jun 12 2009, 12:24 GMT - Latvian devaluation fears
Published On Fri, Jun 5 2009, 07:54 GMT
Danske Bank
| Holmens Kanal 2-12, DK-1092 Copenhagen
http://www.danskebank.com/ | danskeresearch@danskebank.com
Legal disclaimer and risk disclosure
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.Related reports
Weekly Market Commentary - Libor and Official Interest rates are at their narrowest by Mizuho Corporate Bank
Fri, Jul 3 2009, 14:33 GMT
Flash Comment - Russia considers bank bail-out by Danske Bank A/S
Fri, Jun 26 2009, 10:16 GMT
New Europe Weekly - Uncertainties building up in Russia by Danske Bank A/S
Fri, Jun 19 2009, 12:47 GMT
US Morning Notes - USD lower, Russia expects creation of a global currency by Easy Forex
Tue, Jun 16 2009, 12:35 GMT
Forex Daily Overview - USD consolidates post G-8 gains as equities and oil fall by Easy Forex
Mon, Jun 15 2009, 16:50 GMT
Related content
Russian Ctrl Bank Reserves Jun 26 $410.5B; Up $3.4B On Week
Dow Jones | Thu, Jul 2 2009, 07:21 GMT
Russia's Oil Wealth Funds Down To RUB5.771 Trillion July 1
Dow Jones | Wed, Jul 1 2009, 12:00 GMT
Russian Ctrl Bk Reserves Jun 19 $407.1B, Up $0.5B On Week
Dow Jones | Thu, Jun 25 2009, 07:32 GMT
Russian Ctrl Bk Reserves June 12 $406.6B, Dn $2.9B On Wk
Dow Jones | Thu, Jun 18 2009, 07:36 GMT
Big Four Emerging Economies Meet For First Summit
Dow Jones | Tue, Jun 16 2009, 03:16 GMT
Interested in forex trading? forex brokerage firms!
GET CASH BACK FOR YOUR TRADES! Learn more about the Pip Rebate Program
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. FXstreet.com has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.
Any opinions, news, research, analyses, prices or other information contained on this website, by FXstreet.com, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXstreet.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
©2009 "FXstreet.com. The Forex Market" All Rights Reserved.