USD/RUB: Further geopolitical escalation is a serious short- to medium-term risk – Danske Bank

Analysts at Danske Bank, forecast, USD/RUB at 72.00 in 3M, 73.80 in 6M and 75.10 in 12M. They point out that geopolitical premium increase despite higher crude oil prices.  

Key Quotes:  

“Given the change in Russia’s monetary policy stance since summer 2018 and the newly arisen risk of anti-Russia sanctions amid a shaky EM environment, we cut our GDP growth estimates to 1.6% for 2018 (previously 2.0%), 1.3% for 2019 (previously 2.1%) and 1.4% for 2020 (previously 2.2%) – also noting that geopolitical woes remain the major downside risk for our forecasts.”

“Russia’s central bank (CBR) surprisingly hiked the key rate by 25bp to 7.50% in September 2018, raising inflation projections and emphasising the risk of external factors. Inflation has started accelerating mostly due to a low base effect. In August, consumer prices rose 3.1% y/y versus 2.5% y/y a month earlier. We do not exclude the possibility of the CBR hiking again in Q4 18.”

“The geopolitical premium in the RUB has continued to increase despite the rising oil price. While we do not observe any significant changes in the fundamental factors driving the RUB, we still project our new RUB forecasts assuming that harsh US sanctions against Russia (the so-called ‘bill from hell’) could become law in autumn 2018 and that strong anti-Russian rhetoric will escalate in the US ahead of the US midterm election.”

“Further geopolitical escalation is a serious short- to medium-term risk for the RUB, Russian stocks and government debt. Upside risks come from an increasing oil price and improving relations with the West.”