Page 60 - RPTRusFeb17

7.0 FX
RUSSIA -FX
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
Currency (units per EUR) (eop)
63.37
61.52
74.58
79.70
76.54
71.21
Currency (units per USD) (eop)
58.46
55.52
66.24
72.88
67.61
64.26
Currency (units per EUR) (average)
83.00
85.90
69.92
72.18
82.32
74.38
Currency (units per USD) (average)
62.19
52.65
62.85
65.86
74.59
65.88
As of the end of January the ruble was 34% more valuable than it was a year earlier. Since the beginning of 2017 as of February 17 the ruble has gained 7% to the US dollar, outpacing the MSCI emerging market currency index, which gained 3.4% to the US dollar. However, since 2014 the ruble has lost 43% versus the MSCI EM's currency loss of 5%. The "finance block" of the government (the finance and economy ministries) are concerned with the recent strengthening of the ruble stemming from recovering oil prices and the perceived positive impact for Russia from the last US presidential election.
The ruble briefly dipped below 58 rubles per dollar for the first time since July 24, 2015 at the start of February . The ruble continued to rise after signs that OPEC oil producers were cutting output as promised under a global deal. OPEC, Russia and other producers agreed to cut oil production by a combined 1.8mn barrels per day in the first half of 2017 to boost prices and get rid of a supply glut.
The ruble’s fair value is RUB60-65/$under a $60/bbl scenario: Due to its free-float regime, the market forces should push the ruble exchange rate closer towards equilibrium says Alfa Bank.
The Russian ruble’s real effective rate grew 3.7% in January, the central bank said on February 9 citing a preliminary assessment. The ruble rose 4.3% against the dollar in real terms on the month in January and 3.2% against the euro. The Russian ruble’s nominal effective rate rose 3.7% on the month in January. The ruble stood at 60.16 rubles against the dollar in nominal terms and at 64.43 rubles against the euro. The central bank has also revised the December 2016 and full 2016 real effective rate to a 5.9% and 20.4% rise, respectively.
At first glance, the ruble found support in the Rosneft deal; however, despite the participation of global investors, it now appears that the 19.5% stake purchased in Rosneft was financed by an $8bn loan from Russian banks and, hence, the deal did not generate any capital inflow to the country. Even worse, in December, Russia’s dollar interbank rates started to rise, forcing the CBR to increase its forex repo facilities by nearly $4.5bn – during 2016, the use of this instrument had been declining. This implies that instead of the decline in local rates that investors had been expecting, a convergence between the forex and ruble rates is actually taking place through the upward movement of the forex rate. Clearly, the cancellation of sanctions would be a game changer; but aside from this hope, there are no strong arguments to suggest improvements to Russia’s capital account this year. However, at the moment, the reality is that Russian banks are experiencing a squeeze in forex liquidity which should play against ruble appreciation, all things being equal.
60 RUSSIA Country Report February 2017 www.intellinews.com