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2 Apr 2015
Russian ruble to remain neutral – JP Morgan
FXStreet (Edinburgh) - Analysts at JP Morgan see the Russian currency keeping its neutral stance in the near term.
Key Quotes
“The lack of negative news headlines surrounding geopolitical tensions in Ukraine has helped reduce the risk premia demanded by locals and foreign investors for Russian assets”.
“This helps explain the relative stability of RUB even after the CBR’s rate cuts this year (by 300bp)”.
“More broadly, in our framework for analyzing the RUB, we have always maintained that in the absence of a disorderly demand for FX from locals, the RUB screened undervalued on most metrics”.
“We argued for example that corporates have enough FX assets to finance their FX liabilities over the next year and that the real risk to the RUB was (and continues to be) from a deterioration in locals’ sentiment towards the currency, prompting hoarding of FX by corporates and dollarization by households”.
“This deterioration in sentiment may be triggered by a more aggressive fall in oil or further limits on corporate access to the financial markets. In the absence of these factors however then the improvement in Russia’s C/A given the REER depreciation and compression in domestic demand is likely to supply the economy with enough FX over the medium run to keep the currency stable”.
“Overall, with continued uncertainty over both the direction of oil in the short term and geopolitical tensions, as well as likely further rate cuts from the CBR, we prefer to remain neutral RUB for now”.
Key Quotes
“The lack of negative news headlines surrounding geopolitical tensions in Ukraine has helped reduce the risk premia demanded by locals and foreign investors for Russian assets”.
“This helps explain the relative stability of RUB even after the CBR’s rate cuts this year (by 300bp)”.
“More broadly, in our framework for analyzing the RUB, we have always maintained that in the absence of a disorderly demand for FX from locals, the RUB screened undervalued on most metrics”.
“We argued for example that corporates have enough FX assets to finance their FX liabilities over the next year and that the real risk to the RUB was (and continues to be) from a deterioration in locals’ sentiment towards the currency, prompting hoarding of FX by corporates and dollarization by households”.
“This deterioration in sentiment may be triggered by a more aggressive fall in oil or further limits on corporate access to the financial markets. In the absence of these factors however then the improvement in Russia’s C/A given the REER depreciation and compression in domestic demand is likely to supply the economy with enough FX over the medium run to keep the currency stable”.
“Overall, with continued uncertainty over both the direction of oil in the short term and geopolitical tensions, as well as likely further rate cuts from the CBR, we prefer to remain neutral RUB for now”.