Russian ruble surges on the rate hike expectations…

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Russian ruble surges on the rate hike expectations…

...but remains close to its all time lows

Yesterday the Russian ruble surged 5 % against the US dollar on expectations that the Russian central bank would raise its base rate by 50 basis points to 8.5%. Although the ruble’s jump was the biggest in more than 10 years, it is still close to its all time lows. Recall that the rouble has lost already more than 20 % against USD from the beginning of July. The Russian currency is currently undermined by several factors. Geopolitical tension due to the Ukrainian crisis has worsened the sentiment and sanctions against Russia from USA and EU hit the stagnating Russian economy as well. Last but not least falling oil prices added fuel to the fire. Nevertheless massive interventions have had so far little effect. The CBR has spent already almost 68 bn USD on the currency interventions this year, including 28 bn USD in October, to stabilize the ruble. The weakening currency has also effect on the inflation, which remains high above the target, thus in our view tightening of the monetary policy is very likely.

In contrast, CEE currencies – koruna, zloty and forint - seem to be relatively untouched by ruble’s fall. Although negative market sentiment caused by the Ukrainian crisis has weighed on the currencies in Central Europe, their weakening is incomparable to the one of ruble, in spite of persistent loose monetary policies.