The Russian rouble strengthened against the US dollar in June, rising from 73.248 to 73.139. According to MUFG Bank economists, RUB undervaluation will diminish as the geopolitical risk premium is reduced. Furthermore, the rouble is expected to benefit from better domestic fundamentals.
”
In June, the CBR raised interest rates for the second time in a row, signaling that further hikes are on the way in the coming months. Governor Nabiullina does not believe the recent increase in inflation is temporary, but rather long-term, and intends to react quickly but predictably on interest rates. In July, the NBR is prepared to contemplate a rate hike of up to 1.00 percentage point. It would push the key policy rate higher, above their estimate of the neutral policy range of 5.00 percent to 5.00 percent “six percent.”
“The rouble is becoming a more appealing carry currency as yields rise. At the same time, the increasing price of Brent crude oil is supporting the rouble, which has now fully recovered from last year’s COVID-19-related sell-off. We predict the price of oil to continue higher in the coming year, owing to increased global demand.”
“Another recent positive has been the reduction in the large geopolitical risk premium that had been built into the rouble. Expectations were low going into the summit between Presidents Biden and Putin, but the agreement to return their ambassadors to Washington and Moscow gave market participants hope.”
“In the coming year, we expect the rouble to strengthen further from its current undervaluation.”/n
