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Today’s Dovish Decision Confirms That EURRUB Level Is Likely To Be 'Artificial'

RUSSIA
  • The CBR decided to cut its policy rate more than expected in today's meeting, down to 8% (vs. 9% exp.), from 9.50% previously.
  • The central bank also added that it will consider further cuts in the second half of 2022.
  • Interestingly, EURRUB spot rateis barely unchanged following the decision, currently trading at around 58.90.
  • 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 a sharp contraction for 2022.
  • Today’s decision also confirmed that the current spot rate may not reflect the ‘fair’ rate given the current environment.
  • Any other EM central bank cutting rates more than expected would have seen its exchange rate collapse, particularly considering the elevated level of risk aversion.
  • Our MNI ‘fair’ value model is still pricing in an exchange rate closer to 100 than 60 (see chart).

Source: Bloomberg/MNI

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  • The CBR decided to cut its policy rate more than expected in today's meeting, down to 8% (vs. 9% exp.), from 9.50% previously.
  • The central bank also added that it will consider further cuts in the second half of 2022.
  • Interestingly, EURRUB spot rateis barely unchanged following the decision, currently trading at around 58.90.
  • 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 a sharp contraction for 2022.
  • Today’s decision also confirmed that the current spot rate may not reflect the ‘fair’ rate given the current environment.
  • Any other EM central bank cutting rates more than expected would have seen its exchange rate collapse, particularly considering the elevated level of risk aversion.
  • Our MNI ‘fair’ value model is still pricing in an exchange rate closer to 100 than 60 (see chart).

Source: Bloomberg/MNI