USD/RUB Continues Ascent Despite Negation of Capital Controls
- Bank Governor Dispels Any Speculation of Capital Controls
- In the Event of Persistent Inflation Key Rates and Reserve Fund can be Altered
- USD/RUB Prices Stall at 39.50 with Potential for Successful Break Higher
In an address from the September 25th Government’s Meeting, Bank of Russia Governor, Elvira Nabiullina negated any market speculation of capital controls. Instead, the governor reinforced the central banks intent to maintain an open market approach with interest rate rather than exchange rate targeting. However, despite the positive rhetoric, the market remains critical of Russia’s ability to maintain a free float currency without producing sky high inflation.
Capital controls, which previously inhibited the cross border movement of capital, were lifted in 2006. Going into 2015, even if the baseline economic scenario- gradual economic recovery, moderate declines in oil prices, lower geopolitical risks- is revised to a less optimal scenario – longer trade restrictions, pronounced drop in oil prices, increased capital outflow- several monetary tools remain available to the central bank to ensure financial stability and prevent further economic stagnation.
If a lower ruble continues to place higher inflationary pressure on the economy, to the point of exceeding the medium term target (4%), one option available to the central bank is to revise the key rate (8.0%) up. To further develop the debt market the Finance Ministry can continue to sell government bonds at an increasing rate until the cost of borrowing exceeds 9.5%. If borrowing conditions then become unfavorable and if oil prices remain depressed, the government, which is currently operating on a budget surplus, could tap into the oil and gas Reserve Fund.
Whether any of these measures will be taken and if so to what extent remains unknown. Prices have thus been stalling at an equal wave measure near 39.50. On a successful break higher, the next wave relationship comes in at 41.00. The top of the black channel line will likely hold and support any movements lower.
USD/RUB Daily Chart
Chart Created By Jeremy Wagner Using MarketScope2.0
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