Russian USDRUB Intervention Mechanism, FX Purchases explained by CS

? In our view, it makes sense to resume regular FX purchases due to (1) the strengthening of the rouble in REER terms, (2) the decision of the government to save windfall oil and gas revenues, and (3) higher oil prices.

? We expect the mechanism of regular FX purchases in 2017 to replicate the fiscal rule (which will be approved by parliament in 2018), with the parameters of the FX purchase mechanism being reset on a monthly basis.

 ? The CBR is likely to be in charge of regular FX purchases in 2017, while the Finance Ministry is likely to take over in 2018-2019, if the Brent oil price stays above $50/bbl.

 The rouble’s response to the announcement of the details of FX purchases will depend on the amount of daily FX purchases. In our view, a daily volume of $50mn (as was noted by unnamed government officials on Bloomberg today) would not have a major negative implication for the rouble in 1Q due to the expected favorable balance of payments dynamics during that period.

? In the longer run, during the course of this year, we expect the rouble to converge towards our annual average forecast of 62.5 against the dollar.

? We also expect the intervention mechanism to reduce the rouble’s volatility, which would make it even more attractive as a carry trade, in our view.

 ? The decision on interventions will be either neutral or marginally more favorable for the monetary policy, in our view. We are not changing our expectation for a policy rate cut by the CBR at the second meeting of 2017, on 24 March.

Russian USDRUN Intervention Mechanism, FX Purchases explained by CS

? In our view, it makes sense to resume regular FX purchases due to (1) the strengthening of the rouble in REER terms, (2) the decision of the government to save windfall oil and gas revenues, and (3) higher oil prices.

? We expect the mechanism of regular FX purchases in 2017 to replicate the fiscal rule (which will be approved by parliament in 2018), with the parameters of the FX purchase mechanism being reset on a monthly basis.

 ? The CBR is likely to be in charge of regular FX purchases in 2017, while the Finance Ministry is likely to take over in 2018-2019, if the Brent oil price stays above $50/bbl.

 The rouble’s response to the announcement of the details of FX purchases will depend on the amount of daily FX purchases. In our view, a daily volume of $50mn (as was noted by unnamed government officials on Bloomberg today) would not have a major negative implication for the rouble in 1Q due to the expected favorable balance of payments dynamics during that period.

? In the longer run, during the course of this year, we expect the rouble to converge towards our annual average forecast of 62.5 against the dollar.

? We also expect the intervention mechanism to reduce the rouble’s volatility, which would make it even more attractive as a carry trade, in our view.

 ? The decision on interventions will be either neutral or marginally more favorable for the monetary policy, in our view. We are not changing our expectation for a policy rate cut by the CBR at the second meeting of 2017, on 24 March.