понеделник, 25 януари 2016 г.

Watch for the ruble's tipping point beyond oil prices

It has long been a truism that if one wants to read the future of the ruble rate the short cut are oil prices. There are two major components that depending on the rate swing extremes play different roles - the tipping point beyond which important players start to panic and join in the stampede. For most of the time the ruble's fall has been closely mimicking the fall in the oil prices. Yet there is more to it than a pure market interplay - the psychological factors weigh in mightily with the ruble approaching the 90 rubles per dollar rate.
A further depreciation might be triggered by the loss of trust and investors leaving ruble denominated assets. A free fall might then ensue as the government fails to restore confidence in the merit of using the ruble. Although there might be a reverse at higher rate levels for now the downward trends seems unstoppable.
The consequences for the Eurasian Union zone countries would be imminent and devastating.
While many analysts attribute a substantial role to the sanctions in undermining the Russian economy and the ruble their lifting will do little to strengthen the currency. On the contrary it will almost immediately impact the trade and the current account balance, draining further foreign currency reserves. Market players look for signs in reversing the policy line at the Kremlin not strong verbiage.
In a perverse way the lower ruble value may help Putin limit the budget deficits and meet social payments. According to a Bank of America study, the ideal ruble rate at which the Russian state budget would be perfectly balanced would be 210 rubles per dollar.
While this might seem too academic and off the real ground at present it brings home an important message - weaker ruble alone would not bring Putin to his knees. At least not immediately.
The oil price will continue to form the reference base for the ruble rate but psychological factors will reign more and more. The plunge in the loss of trust in President Putin and his grip on the Russian economy power, his evident inability to arrest the down slide and reverse the negative trends will further erode the ruble rate.
Putin is much more than a lonely tzar at the top of Russia's power vertical. He is the CEO of the Kremlin Inc. but he could hardly trust his shareholders these days. The unrivaled resource base of Russia could hardly act as an anchor in stormy waters. Once thing is certain - with more doom and gloom coming from global commodity markets no one should rule out further sharp ruble depreciation and inflation hike.
The world does not trust Mr. Putin anymore and is looking for his replacement.

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