CBR Must Act to Correct ’Overshooting’ Ruble: Commerzbank
By Mark Cudmore
Dec. 2 (Bloomberg) — Current ruble weakness is overdone and will only be justified by serious further deterioration in fundamentals writes Simon Quijano-Evans, head of EM research at Commerzbank, in a client note.
“The extreme volatility we are witnessing in RUB is something that should not be allowed by a central bank”; Commerzbank expect major FX intervention to “remedy” the exchange rate
Current RUB exchange rate implies that:
Sanctions will escalate to block the state from fund access
Oil prices will continue to fall
Central bank has no freedom to use its reserves
Based on oil price and USD/RUB exchange rate averages for the year so far, 2014 budget surplus is likely to be ~1.5% of GDP; assuming the state wishes to balance the budget in 2015, the current exchange rate implies 2015 oil price will avg $72/bbl and they will not draw on reserve fund at all
Alternatively:
Drawing 500b RUB (~12%) from reserve fund would shave 4 RUB per USD from exchange rate
Allowing a 2015 budget-deficit of 0.5% would cut another 3 RUB per USD from exchange rate
2015 current account should remain in surplus and state should have no problems raising funds if needed as “its debt/GDP level is the lowest in the world at 12%”
NOTE: Commerzbank forecasts Russian GDP will contract 1.4% next year, sees no impact in view after Economy Ministry revised its forecast for 2015 Russian GDP to -0.8% in 2015 from 1.2% growth previously
NOTE: RUB is currently trading at 57.85 vs the central bank’s dollar/euro basket, after rallying ~5.2% from yesterday’s record lows, and has erased earlier gains vs USD to trade at 52.14, ~0.9% lower
