9 Dec 2014
The Ruble in the Rubble – SEB
FXStreet (Barcelona) - Per Hammarlund, Emerging Markets strategist at SEB, comments on the next move by the Central Bank of The Russian Federation to stem RUB’s decline, noting that CBR hiking the rates to 10.5% can be the first step before other steps are initiated.
Key Quotes
“The Russian Central Bank is trying to prop up the RUB through ad-hoc interventions, verbal threats against speculators, interest rate hikes, and reduced RUB liquidity. On November 10, the CBR announced that it would limit RUB liquidity by temporarily reducing the size of its FX swap auctions to $2bn per day in the hope that reduced RUB availability would support the RUB. However, the measures have only temporarily stopped the fall."
“The limit on RUB liquidity has pushed up overnight the MosPrime rate by more than 1.5 ppt to 10.5% since November 1, and prompted the Sberbank to describe it as a "massive" problem. Initially, the limit on liquidity was supposed last until November 30, but they still remain in place. Neither the CBR, nor the government has given any firm indication of when liquidity will be eased. With the price of oil continuing to fall, the CBR will likely keep it tight.”
“Now, the widening yield gap between RUB-denominated bonds traded in Moscow versus London suggests that the bond market is starting to price in capital controls by the Russian authorities. We think that before the introduction of capital controls or an improvement in liquidity, the CBR will hike the key policy rate by 100bps to 10.5% on Thursday to stem the RUB decline.”
Key Quotes
“The Russian Central Bank is trying to prop up the RUB through ad-hoc interventions, verbal threats against speculators, interest rate hikes, and reduced RUB liquidity. On November 10, the CBR announced that it would limit RUB liquidity by temporarily reducing the size of its FX swap auctions to $2bn per day in the hope that reduced RUB availability would support the RUB. However, the measures have only temporarily stopped the fall."
“The limit on RUB liquidity has pushed up overnight the MosPrime rate by more than 1.5 ppt to 10.5% since November 1, and prompted the Sberbank to describe it as a "massive" problem. Initially, the limit on liquidity was supposed last until November 30, but they still remain in place. Neither the CBR, nor the government has given any firm indication of when liquidity will be eased. With the price of oil continuing to fall, the CBR will likely keep it tight.”
“Now, the widening yield gap between RUB-denominated bonds traded in Moscow versus London suggests that the bond market is starting to price in capital controls by the Russian authorities. We think that before the introduction of capital controls or an improvement in liquidity, the CBR will hike the key policy rate by 100bps to 10.5% on Thursday to stem the RUB decline.”