Capital controls and higher energy prices lift rouble – MUFG

The rouble has continued to strengthen sharply against the US dollar resulting in USD/RUB falling to the lowest level since the middle of 2015. Capital controls and higher energy prices are set to continue propelling the RUB, economists at MUFG Bank report.

RUB has benefitted from record current account surpluses while outflows restricted

“The sharp strengthening of the rouble appears to be creating more concerns amongst domestic policymakers. It has been reported that Russian officials are considering ways to dampen upward pressure on the rouble including a further loosening of rules on currency operations for companies active abroad and allowing more access to foreign exchange for households and businesses at home. Another method would be to set up a new budget rule to sterilize windfall budget revenues.”

“The CBR has now fully reversed the 10.5 point emergency rate hike delivered at the end of February when the Ukraine conflict first started. It reflects confidence from the CBR that the inflation outlook will improve significantly in the coming years supported by the sharp strengthening of the rouble.”

“The rouble will remain subject to upward pressure while capital controls remain in place to limit outflows, and Russia’s export revenues are boosted by higher energy prices.”

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