Category Archives: Russian ruble

15/4/15: Ruble Trades Below 50 to USD

Russian Ruble has crossed an important marker today, closing below 50 to USD for the first time since the end (28th to be precise) of November, effectively erasing all of the losses sustained during the speculative run of December 2014.

There has been more volatility in euro markets, so a bit less of an event today there:

Longer-term chart shows Ruble dramatic gains in both Euro and Dollar terms from around February

As I said before, these gains can prove to be temporary, so stay long with care, if you are long...

8/4/15: Ruble’s Gains Are Convincing, But Risks Remain

Three charts:

Russian car sales
Source: @moved_average 

Down 42.5% y/y in March (estimated 43% decline).

Ruble v Dollar is going up and up:

Source: @Schuldensuehner 

Ruble v Euro is also up and up...

Source: @Schuldensuehner 

Linking all three? The myth of Ruble liquidity squeeze (e.g. here and here). Reality: sharp drop in imports, slight improvement in oil prices (and more importantly stabilisation of the trend to the upside) and improving conditions in the domestic banking sector are all driving ruble value up.

Another strong contributing factor is timing of external debt redemptions:

These are now past their 2015 peaks.

All positive, but uncertainty remains and is still extremely high, so I would not be surprised if ruble starts posting some losses in and around the end of Q2.

26/3/15: De-dollarisation of Russian accounts: media catching up, but risks remain

As I highlighted a week ago here:, Russian households are starting de-dolarising their accounts in the wake of some regained confidence in the Ruble and the banking sector:

However, not all is well, still and risks remain. Here is BOFIT analysis of the forward risks relating to oil prices and the banking sector (more on the latest forecasts later on the blog): "If the oil price remains, as assumed, at around USD 55 a barrel, and despite savings decisions, the federal budget deficit is set to grow so large in 2015 (to about 3.5% of GDP) that the government Reserve Fund may be eroded by as much as a half. It is possible that support measures will be implemented using government bonds (as in the bank support operations in December 2014, which amounted to 1.4% of GDP). The support operations can also draw on debtors’ bonds (as in the funding of the state-owned oil giant Rosneft, which was just under 1% of GDP). Where necessary, banks can use both instruments as collateral against even relatively long-term central bank funding. Recourse to the central bank has already become more substantial than ever before."

And more: in the face of oil price risks, "Bank panic situations where households and enterprises withdraw their funds from banks are possible, even though the authorities have intensified banking supervision. On the other hand, the Bank of Russia is ready to take immediate support measures."

All of which means that from the macroeconomic perspective, the current reprieve in dollarisation trends can be temporary. Over the next six months, I still expect continued decline in investment, with private sector capex depressed by a number of factors that are still at play: the Ukrainian crisis, the looming threat of deeper sanctions and oil price risks. State enterprises and larger state banks are likely to continue cutting back on large debt-funded investments and more resources will continue to outflow on redemption of maturing corporate and banking debt. 

So keep that seat belt fastened: the bumpy ride ain't over, yet.

17/3/15: IMF Cries Wolf as Emerging Markets Currencies Plunge

Remember the Russian Ruble Melt of 2014? Now get ready for the Emerging Markets Currencies Shake-n-Bake of 2015:

H/T: @Schuldensuehner

It is a miracle that the Fed can do in the IMF-sponsored mercantilist world of Exports-led Recoveries...  And guess who is now crying wolf? Why, IMF, of course: Except they don't dare call it a wolf, just 'lessons to be learned'.

8/2/15: Carry Trades Returns: More Pressure for Ruble & CBR

Carry trades involve borrowing in one currency at lower interest rates (say in Euro or Japanese Yen) and 'carrying' borrowed funds into investment or lending in another currency, bearing higher interest rates (e.g. into Australia or New Zealand, or Russia or Brazil). The risk involved in such trades is that while you hold carry asset (loan to, say, an Australian company), the currency underlying this asset (in this case AUD) devalues against the currency you borrowed in (e.g. Yen). In this case, your returns in AUD converted into Yen (funds available for the repayment of the loan) become smaller.

With this in mind, carry trades represent significant risks for the recipient economies: if exchange rates move in the direction of devaluing host economy currency, there can be fast unwinding of the carry trades and capital outflow from the host economy.

Now, let's define, per BIS, the Carry-to-Risk Ratio as "the attractiveness of carry trades" measured by "the ...risk-adjusted profitability of a carry trade position [e.g. the one-month interest rate differential]... divided by the implied volatility of one-month at-the-money exchange rate options".  In simple terms, this ratio measures risk-adjusted returns to carry trades - the higher the ratio, the higher the implied risk-adjusted returns.

Here is a BIS chart mapping the risk-adjusted ratios for carry trades for six major carry trade targets:

Massive devaluation of the Russian Ruble means that carry trades into Russia (borrowing, say in low interest rate euros and buying Russian assets) have fallen off the cliff in terms of expected risk-adjusted returns. There are couple of things this chart suggests:

  1. Dramatically higher interest rates in Russia under the CBR policy are not enough to compensate for the decline in Ruble valuations;
  2. Forward expectations are consistent with two things: Ruble devaluing further and Russian interest rates declining from their current levels.
Still, three countries with massive asset bubbles: New Zealand, Australia and Mexico are all suffering from far worse risk-adjusted carry trade performance expectations than Russia.

The Russian performance above pretty much confirms my expectations for continued weakness in Ruble and more accommodative gradual re-positioning of the CBR.