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Economists at Credit Suisse see scope for further short-term decline in USD/RUB and stick to a long-held range view of 72.00-76.00, as markets re-assess rouble’s tail risks around the possibility of harsh US sanctions.

A halt to the central bank’s FX purchase program could be a first line of defence in case the rouble is under pressure again  

“Two factors seem to underpin markets’ nervousness about the current conflict between Russia and Ukraine. The first is the historical context. The Russia/Ukraine conflict in 2014 led to Russian annexation of Crimea and was the primary catalyst for US and EU decisions to create a sanctions regime targeted at Russia. The second source of nervousness is the idea that before the recent tension between Russia and Ukraine emerged investors ‘only’ needed to assess the US administration’s willingness and readiness to upscale its response to events such as the imprisonment of Alexei Navalny or the SolarWinds hack. Whereas under the new set of circumstances investors also need to take into account the possibility of Russian actions to a degree which could induce the US and the EU to impose new sanctions on Russia.”

“The scope for a summit between Biden and Putin ‘in the coming months’ and Biden’s intention to establish a ‘stable and predictable interaction’ are likely to incentive markets to price out the risk that the US will deliver harsh sanctions on Russia in coming weeks or that the tensions between Russia and Ukraine will rise materially. From this perspective our long-held target range for USD/RUB (72.00-76.00) still looks relevant for the short-run.”  

“If we are wrong and the tensions between Russia and Ukraine do intensify then we could imagine USD/RUB breaks above our target range and tests last week’s high of 78.04. In this scenario further rises in USD/RUB above that level (e.g. to 80.00) could led to some policy support in the form of a central bank’s decision to halt its fiscal-rule-based FX purchases which currently run at about $110mn per day.”  

 

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