CBR kept the key rate unchanged at 7.25%

USD/RUB expected to drop to 58.30 in the medium term – Danske Bank

Vladimir Miklashevsky, Senior Strategist at Danske Bank, keeps the constructive tone for the Russian currency in the medium term horizon.

“Russia’s central bank (CBR) kept the key rate unchanged at 7.25% as we expected, along with Bloomberg and Reuters. Inflation stayed unchanged at 2.4% y/y in April, while the CBR preferred to stop rate cuts on increased volatility due to the new anti-Russia sanctions by the US in April. We expect the CBR to lower the key rate to 6.50% by end-2018 (6.25% previously) and to 5.75% by the end-2019 (5.50% previously). However, we expect the CBR’s monetary easing path to be very gradual throughout 2018-19”.

“Given persisting geopolitical risks as a wave of new anti-Russia sanctions could arise anytime, we raise our view on the rubles to dollars increasing demanded geopolitical premium. Our new rub to usd forecasts have been raised to 61.50 in 1M (previously 59.50), 60.10 in 3M (57.30), 58.30 in 6M (56.40) and 55.70 in 12M (54.90). As we remain positive about the crude price and Russia’s macro fundamentals in the long term, we see macro fundamentals supporting the RUB, keeping a geopolitical premium”.