Page 73 - RusRPTFeb19

7.0 FX
RUSSIA -FX
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
Currency (units per EUR) (eop)
71.21
70.88
63.81
60.60
67.50
68.04
69.26
70.36
73.39
Currency (units per USD) (eop)
64.26
63.16
60.66
56.38
59.09
58.02
57.73
57.09
62.73
Currency (units per EUR) (average)
74.38
72.15
68.13
63.27
62.88
69.22
68.78
69.88
73.73
Currency (units per USD) (average)
65.88
64.62
63.07
58.82
57.14
59.00
58.41
56.87
61.783
Russia’s ruble opened 2019 at three year lows against the dollar before paring losses at below 70 rubles. In 2018, the Russian currency lost 21.1% of its value against the dollar and 15.5% versus the euro. The Central Bank let the ruble float freely in 2014 after unsuccessfully burning through substantial foreign currency reserves in a doomed effort to buttress its value. A monthly Reuters poll predicted that the ruble in 2019 would stand at 66.85 versus the dollar and at 76.50 against the euro.
The Russian ruble is undervalued by 70.4% against the US dollar, according to to The Economist’s “Big Mac index”. “The Big Mac index is based on the theory of purchasing-power parity, which states that currencies should adjust until the price of an identical basket of goods – or in this case, a Big Mac – costs the same everywhere,” it said. “In Russia, for example, a Big Mac costs 110 rubles (US $1.65), compared with $5.58 in America.” In January 2018, the ruble was undervalued 57% against the dollar, according to the index.
Sberbank worsened the forecast of the ruble exchange rate for the next two years in 2019 and 2020. This follows from the presentation of the vice- president and director of the department of strategy and development of the bank Ekaterina Latypova, reports TASS. In particular, Sberbank expects the ruble exchange rate in the next two years at the level of RUB65–RUB70 per dollar, the agency notes. The bank had previously predicted a rate of RUB66.5 for a dollar in 2019 and RUB67 in 2020 In addition, Sberbank adjusted its inflation forecast for 2019–2020. In these two years, Sberbank expects inflation at the level of 4–5%, with expectations earlier at 4.4% at the end of 2019, 4% at the end of 2020. The fair exchange rate of the dollar is RUB50, says the Ministry of Finance. On December 8, the Central Bank set the ruble to RUB66.5 for a dollar. Inflation in November 2018, according to the regulator, is 3.8%.
Ruble facing 2019 headwinds. Though 1Q is typically good for the exchange rate, analysts expect it to hold to 65-73 rubles per US dollar in 2019. The ruble tends to perform well early in the year thanks to Russia's export surplus dollar reserves, but the widely-held assumption that US sanctions will be expanded and the oil price drop from late 2018 have convinced the market that the ruble will not strengthen. At this point, everyone's waiting to see what the Democrats do with control of the House of Representatives. It'll take a few months for the effects to be felt in policy terms, but expect newer sanctions bills to gain life in the media and in committee by mid March. The next stage of Skripal sanctions is unlikely to be significant, but also poses a risk. Oil markets remain uncertain, but globally slowing demand as well as US Fed rate policy will pressure the ruble as well. The ruble closed the year 2 rubles per dollar higher than the end of November, stabilizing around 69 per USD. Bloomberg data had the ruble weakening roughly 17% against the USD for the year. The CBR is relaunching
73 RUSSIA Country Report February 2019 www.intellinews.com