The USDRUB rate is back above 36.00 - nearing its record lows - despite a surprise Russian rate hike this morning aimed at stalling the capital outflows. It seems Lavrov's comments that Kiev will face "bloody justice" geopolitical angst is trumping any arbitrage or macro data flows for now. Russian stocks are also fading.
The Ruble continues to weaken...
[5]
Goldman's view of the rate hike...
The CBR unexpectedly raised all its rates by 50bp and the key rate now stands at 7.5%, citing increased risks to its 5% end-year inflation target stemming from more pronounced exchange rate pass-through, a rise in inflation expectations and food price dynamics.
In addition, the CBR indicated that it does not intend to lower policy rates in "the coming months" and that today's decision should ensure that inflation does not exceed 6% at year-end. In our view, there are two possible explanations for today's surprise rate hike: (i) concerns about risks to inflation expectations and CBR credibility against the backdrop of above-target inflation; and (ii) a desire to reduce demand for CBR liquidity provision so that the repo rate once again becomes the binding and market-determining policy rate.
We think raising the key rate to a level where the higher rates, including the FX swap rate, do not draw demand is likely a prerequisite for resuming the move towards introducing greater Ruble flexibility.
The fact that the CBR has raised rates today therefore suggests to us that the Bank intends to move in this direction more quickly than anticipated. Separately, the CBR announced the introduction of a new 3-year liquidity provision facility at 6.5% against collateral of state-guaranteed loans for investment projects but did not provide further details on eligible collateral, allotment or timing.
We believe that the facility is at this stage more experimental and we will need to see the project pipeline to see its impact on liquidity and rates. Nevertheless, in our view it is a step backwards towards less transparency and a less equal playing field in the banking sector.
As Ransquawk adds, its been a volatile morning...
The Russian Micex traded lower at the start of the session after Russia was cut by S&P from BBB to BBB-. However, losses were trimmed after Russian foreign minister Lavrov said Russia will push to de-escalate the Ukraine conflict despite accusing US Secretary of State Kerry of using a prosecutorial tone.
[6]
This was later followed by reports of a Ukraine helicopter damaged after shot by a sniper and comments from Russian President Putin saying Russia should increase production of anti-missile systems.