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1 Apr 2015
RUB recovery hinges on oil and politics – BAML
FXStreet (Edinburgh) - Better prospects for the Russian currency could materialize in case crude oil prices recover and political tensions deflate, notes analysts at BAML.
Key Quotes
“The general consensus about 2015 economic growth coincides with our forecast that the economy declines by about 4%. The economy is also expected to stay in a mild recession into 2016”.
“However, existing forecasts of a more dramatic decline this year are largely associated with scenarios of further escalation of political and oil price risks. Most remaining problems associated with capital flight and sanctions appear to be manageable and are likely fully priced in, unless another round of re-escalation happens”.
“The CBR’s policy seems to have shifted from targeting current inflation historically to the medium-term outlook. With its new medium-term inflation outlook, the CBR also stated that it expects inflation to slow to 9% yoy in March 2016 and to about 4% in 2017. We reiterate our view that CBR will likely cut its key rate to 9% in 2015 eop. We expect the CBR will likely deliver 100bp of rate cuts at nearly every policy meeting this year”.
“Long RUB has recovered with higher oil prices and emerging potential for a longer lasting ceasefire. However, it has lagged sovereign spreads and OFZ bonds and we see scope for further recovery if oil and politics remain stable”.
Key Quotes
“The general consensus about 2015 economic growth coincides with our forecast that the economy declines by about 4%. The economy is also expected to stay in a mild recession into 2016”.
“However, existing forecasts of a more dramatic decline this year are largely associated with scenarios of further escalation of political and oil price risks. Most remaining problems associated with capital flight and sanctions appear to be manageable and are likely fully priced in, unless another round of re-escalation happens”.
“The CBR’s policy seems to have shifted from targeting current inflation historically to the medium-term outlook. With its new medium-term inflation outlook, the CBR also stated that it expects inflation to slow to 9% yoy in March 2016 and to about 4% in 2017. We reiterate our view that CBR will likely cut its key rate to 9% in 2015 eop. We expect the CBR will likely deliver 100bp of rate cuts at nearly every policy meeting this year”.
“Long RUB has recovered with higher oil prices and emerging potential for a longer lasting ceasefire. However, it has lagged sovereign spreads and OFZ bonds and we see scope for further recovery if oil and politics remain stable”.