Page 60 - RusRPTMar20
P. 60
7.1 FX issues
The coronavirus pandemic fears hit emerging markets in the last days of February and have weakened the ruble.
The ruble is weak because:
● Its a pure commodity play, and with global growth assumptions being battered by C19, commodity plays like Russia look vulnerable:
● Given its twin surpluses, FX bulwark, uber orthodox central bank with falling inflation and rates, every man and his dog was long Russian rates and ruble. Positioning was stretched and now we are seeing the clear-out.
● Despite the wad of FX reserves, the CBR learned from its experience in 2014 that intervening to defend the ruble against fundamental pressures is futile. The uber orthodox CBR will let the ruble adjust, to help insulate the economy from lower oil prices, and also help the budget, bolstering ruble earnings from lower $ oil revenues. The CBR will pick up the pieces from a weaker currency by adjusting policy rates as required.
● With Putin focused on growth now, given his eye on a national vote to affirm his new constitutional set up a weaker currency helps herein - I guess some weakness is fine, but if this turns into a ruble rout then there is a point when the CBR will get a call from the red line from the Kremlin telling them to stop the rot. The will eventually step in with higher rates/FX intervention, but likely not for some time yet. A tanking
60 RUSSIA Country Report March 2020 www.intellinews.com
