Analysts at Lloyds Bank suggests that a combination of looser monetary policy and the need to rebuild both foreign exchange and central government reserves will push USD/RUB modestly higher in the coming months.
“Sharp swings in crude oil prices made the Russian ruble the second most volatile EM currency over the past month, just behind the South African rand. More recently, increased geopolitical risk related to Russian military involvement in Syria have added to the possibility of further unexpected gyrations against the US dollar.”
“Nevertheless, we hold to our core belief that a combination of looser monetary policy and the need to rebuild both foreign exchange and central government reserves will push USD/RUB modestly higher in the coming months. The Russian finance ministry announced in April that it would increase FX purchases from 3.2bn to 3.5bn rubles a day. Meanwhile, in March, the Russian central bank surprised markets by cutting its policy rate by 25bps to 9.75%. The CBR estimates that the “neutral” interest rate for the economy lies between 2-3%. Therefore, even if crude oil prices rise from current levels we would expect them to be matched by lower policy interest rates.”
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