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Foreign Exchange

Russian rouble has room to rise, says Deutsche

Faster inflation in Russia is likely to keep central bank hawks on the front foot, fuelling demand for the rouble, according to analysts at Deutsche Bank.

Consumer prices advanced 0.5% in May, according to the Federal Statistics Service, pushing the year-on-year rate to 9.6%, above the bank’s 7% end-of-year target.

With strong consumption, and investment moving into positive territory, the central bank is likely to push rates higher, after raising the deposit rate by 25 basis points to 3.5% in May, Deutsche says. The Central Bank of Russia held its key refinancing rate at 8.25% at its meeting on May 31.

While capital has flowed out of Russia this year to the tune of some $35 billion, the drip-drip exodus is unlikely to have a major impact on the currency.

“While sharp and dramatic spikes in outflows are reflected in the rouble, a steady and gradual decline is not,” says Deutsche analyst Henrik Gullberg in a note. “We are cautiously constructive on the rouble.”

On Thursday the rouble rose the most in a month against the euro as the price of oil climbed, increasing demand for the currency. It was trading little changed at 27.83 against the dollar on Friday. It hit 28.50 on May 23, its highest level since March 18.

Long positions on the Russian currency have been rebuilt in recent days, Gullberg says, but are still well below the peaks seen in October to December 2010.


Three month dollar/rouble

 
Source: Bloomberg data
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