Friday, March 13, 2015

Ben Aris — Russian ruble seen appreciating by third this year

After crashing in December, Russia’s ruble has made a remarkable comeback since February by rising about 15% against the dollar, making it the best performing currency amongst the 14 in Emerging Europe so far this year, according to Bloomberg. And the appreciation of the ruble is not over, argues Alfa Bank chief economist Natalia Orlova; the ruble could appreciate by as much as a third over the rest of this year if things go well.
You don’t need a PhD in economics to see that the ruble was oversold during its collapse from the mid-50s in November to a low of RUB80 to the dollar in the depths of the panic in December. But it bounced back into the 70s and then 60s very fast.
“Based on this metric the ruble fair value came out at RUB56/$ by the end of 2014, with this indicator providing correct signal of the ruble depreciation. However, and similar to previous benchmarks, it has underestimated the scale of the ruble’s slump, [and] did not justify a drop to RUB80/$ that was seen in December,” said Alfa Bank’s Orlova in a report entitled, “Ruble 2015: Appreciation Is In The Air”, which was released at the end of February, referring to one of several methods she used to estimate the fair value of the ruble.
In general, Orlova concludes that the ruble was overvalued by about 20% in line with other emerging market peers, but the 40% fall in its value was exceptional. Accepting that the ruble was oversold, the difficult part is working out exactly where the “fair value” of the ruble should be now, once investors switch back from judging the situation using their spleens to using their heads.
Johnson's Russia List
Russian ruble seen appreciating by third this year
Business New Europe – bne.eu – Ben Aris in Moscow – March 9, 2015

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