Page 62 - RPTRusFeb17

7.1 FX issues
Concerns are mounting over plans by the authorities to get back into the FX markets to damp down ruble appreciation. The CBR is expected to enter the forex market from February 1 to buy foreign currency on behalf of the Finance Ministry. This has reduced optimism on the market for a key rate cut this year and convinced many participants that the MinFin is more interested in depreciating the ruble rate. In response, the ruble has returned to RUB60-61/$, which lies in the RUB60-65/$corridor that we see as fair value.
Market overestimates the impact of $2.5bn in monthly purchases, which proved a success through verbal intervention: Alfa Bank believes the recent ruble movements are largely the result of market confusion about the actual effect these actions by the authorities will have. In other words, the government’s verbal intervention proved very successful.
In reality, the scale of MinFin interventions are not enough to move the ruble to RUB65-70/$, as feared by the market . The government simply plans to save additional revenue from oil prices above $40/bbl, the level at which the budget has been drafted: at the current oil price of $55/bbl, the annual budget would gain an extra RUB1.8tn in oil revenue, equating to RUB150bn per month ($2.5bn). This amount is not huge for the local forex market given its average monthly turnover of $40-50bn. In annual terms, the cabinet decision may cause ruble depreciation of RUB5/$at most – a sharper ruble drop is unlikely under stable oil prices.
Russian industry sees RUB54 per US dollar as the optimal national currency rate , according to the survey by Institute of Economic Policy (IEP) cited by Vedomosti on February 28. At the opening of trading on February 28 the ruble traded at RUB57.88 per dollar. The rate suggested in the survey is higher than the RUB60 per US dollar previously advocated by the government, which revived discussion of the "equilibrium" rate as the ruble strengthened on
62 RUSSIA Country Report February 2017 www.intellinews.com