USD/RUB: Political instability in Belarus raises negative spill over risk for rouble – MUFG

Public unrest in Belarus continues to build over the result from the presidential elections on 9 August. This political instability in Belarus hit Russian rouble as the USD/RUB lifted to an intra-day high of 73.800 from the low of 72.800 at the end of last week, economists at MUFG Bank apprise.

Key quotes

“The Belarusian opposition has three key demands: i) President Lukashenka has to go, ii) all political prisoners must be released, and iii) new free and fair elections must be held.” 

“So far President Alexander Lukashenko has insisted he won’t step down and instead proposed changes to the constitution which he has raised repeatedly in the past without making any progress. He stated that ‘we need to adopt a new constitution’ which must be approved by a referendum and ‘according to the new constitution, hold, if you want, elections for parliament, president and local authorities’. The proposals are seen as unlikely to dampen public unrest.” 

“Market participants are now watching closely to see how Russia reacts to political instability in Belarus which is increasing the geopolitical risk premium priced into the rouble. The fear of Russian ‘military’ intervention like in the Ukraine and imposition of further sanctions on Russia poses downside risks for the rouble. However, it is seen as less likely given the protestors are not anti-Russia and do not seek looser ties in the future. Instead, regional experts have pointed to Russia’s policy towards Armenia since 2018 where President Putin now appears content with Armenia’s popular democratic Prime Minister Nikol Pashinyan. If a similar playbook is followed with Belarus then downside risks for the rouble should prove more limited.”