RUB: Spot The ‘Illusion’ Recovery

• Russian first deputy PM Belousov mentioned recently that the floating RUB is ‘essentially not working now’ and that Russian authorities are discussing the targeting of the RUB rate.
• We previously saw that investors have been questioning in the past few weeks if the Ruble ‘recovery’ was ‘real’ or just an ‘illusion’ as some analysts are expecting over 10% contraction in GDP for 2022.
• Though Belousov’s forecasts for this year are ‘more optimistic’ (3% to 5% contraction in GDP), the CDS market is still pricing in over 90% probability of sovereign debt default within one year, therefore questioning the RUB ‘bullish momentum’.
  • BBG quotes shows that EURRUB is currently trading at around the 60 level, close to a 7-year low.
  • RUB has also been strengthening against the US Dollar, with USDRUB testing its key support at 55.89.
• It has been difficult to believe that the RUB is approaching early 2018 highs against the USD in the current environment (Dollar has been the ‘safe haven’ to hold since the start of the year), particularly given the current Russia fundamentals (confidence indicators at extreme lows, probability of default close to 1…).
• It is important to know that the Ruble is not a convertible currency anymore, which can attract arbitraging capital flows, therefore confirming that the current levels are ‘artificial’.
• In this chart, we compute a simple alternative measure of ‘RUB’ using a set of financial and economic variables.
• Interestingly, MNI ‘fair’ value of EURRUB prices in an exchange rate closer to 95; the chart shows the strong divergence between the ‘spot’ rate and the ‘fair’ value rate since the beginning of April.

Source: Bloomberg/MNI