USD/RUB: Russian central bank will have to hike the key rate significantly – Commerzbank

USD/RUB shot to levels around 90.00 on Thursday. However, interventions on the part of the Russian central bank were able to stop the move so that the pair stabilized in the mid-80s. Nonetheless, Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, warns against believing that long-term interventions will be sufficient to prevent further RUB weakness. 

Are interventions sufficient?

“Liquidity on the RUB market is likely to have been thin yesterday, as nobody knows which Russian banks they will be able to cooperate with in the future, nobody is interested in major exposure to these banks. In an environment such as this, interventions are of course more effective than under normal circumstances. However, this effect will ease once the sanctions lists have been published.”

“Do you remember 2009? As soon as 1/3 of the FX reserves had been used up all FX analysts worldwide started to calculate when the reserves would be used up. The result was a dramatic collapse of the currency. That confirmed the old rule: no matter how high the FX reserves are, a central bank will never be able to defend a fundamentally unjustified exchange rate with the help of interventions.”

“Russian central bank cannot rely exclusively on interventions. Sooner or later (I think sooner) it will have to hike the key rate significantly.”