Belarus: Risk of currency crisis, RUB to face strain – Nordea

The current unrest in Belarus aggravates the economic weaknesses and raises the risk of a currency crisis. If Belarus should turn into another Crimea, the BYN could weaken more than 20% with spillover risks on the RUB, Amy Yuan Zhuang from Nordea informs.

Key quotes

“The on-going political upheavals in Belarus bear some resemblances to the Ukraine turmoil in 2014. While a serious escalation to involve Russia military forces remains a tail risk, such a scenario cannot be ruled out and could have tremendous implications on the BYN and possibly the RUB and other currencies in the post-Soviet bloc.”

“Given that the EU has hesitated to make bolder actions than imposing sanctions on a number of key Belarusian officials and the Kremlin has so far remained on the sideline, we do not expect sharp market movements, eg more than a 5% depreciation of the BYN against the USD over the coming 3-6 weeks.”

“There is always a tail risk that the conflict escalates significantly. In such a scenario, the BYN could weaken 20% against the USD and the EUR in a matter of days. A trigger for such a risk scenario could be that the Kremlin decides to provide military support to Lukashenko.”

“The close link between Belarus and Russia puts the RUB under risk. For now, we think that the turmoil will not weaken the RUB significantly but rather cap its upside against the USD. In the case of a larger involvement of Russia followed by fresh EU sanctions, the RUB could fall beyond 80 to the USD.”