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Back to ‘boring’? Rouble calm despite oil and sanctions worries

The Russian rouble outperformed its emerging-market peers on Friday after oil prices picked up and the country’s central bank cut interest rates less than some analysts had expected, as investors remain relatively sanguine about the currency’s prospects despite weaker oil prices and new sanctions from the US.

Oil prices dropped sharply and the US senate approved new measures to punish Moscow for interfering in the US election on Wednesday, prompting an initial weakening in the rouble which continued as the dollar appreciated more widely on Thursday.

However, it recovered somewhat with a 0.6 per cent rally on Friday morning, to R57.5 per dollar. Overall the rouble is 0.82 per cent weaker against the dollar for the week, but it has still gained more than 6 per cent this year.

The price of a barrel of Brent crude, the international oil benchmark, was up 1.36 per cent at publication time.

The currency’s rebound was helped by the Central Bank of Russia’s decision to cut interest rates by only 25 basis points at its latest meeting. While the 25bps move was the most common prediction among economists surveyed by Bloomberg, a significant minority had expected a 50bps cut.

The CRB’s decision also pointed to wider reasons why investors have remained relatively positive about the rouble despite the many challenges facing Russia. The central bank highlighted the brighter outlook for Russia’s economy, with inflation coming under control and economic growth returning.

Analysts at ING said this morning that many investors are feeling “pretty agnostic to Russian risk at present – having enjoyed the positives, but lacking the impulse to act on any negatives”.

As the bank’s Dmitry Polevoy noted earlier this week:

Investors have seen many positives on economic stabilisation, prudent fiscal and monetary polciies and stable rouble on top of the case for a more dovish Fed supporting EM. While there may be weaker momentum for OFZs [Russian government bonds] near-term, there is no clear case for going ‘short’ either. It is common to hear that Russia has turned ‘boring’.