Currencies Direct December 16th 2014 - 2 minute read
The speed of the fall in the Ruble has been astonishing and the pressure on the currency is not expected to ease as long as oil prices keep falling and sanctions remain. The situation has all the ingredients of a currency crisis and the central bank who’s credibility is already being questioned are expected to have to deliver more to protect the fall in the Ruble. If oil falls a further 25% this could leave the Ruble in the current dynamics around 40-50% lower without further central bank intervention. Following the crash on Tuesday, the Central Bank sold foreign exchange reserves on Wednesday to drive the RUB higher, in the short term this has led to a pull-back but it is not a long term solution and the door remains open for further selling pressure.
The Central Bank could act further and push interest rates up to 25% or more and we are likely to see further currency interventions and potentially capital controls to stem the outflow. Whatever the outcome volatility will be extremely high.
It seems the Central Bank of Russia (CBR) are needing to react to the falling price of oil which is out of their control- the central bank seemed to have its head in the sand hoping that oil would rebound and it simply fell further. The price of oil continues to look soft exacerbating the situation and the CBR will be hoping the oil price finds some support in the $60. One area that is in the control is to try and get sanctions removed but this would mean playing fiddle to the west and this does not seem likely.
SME’s should look to hedge their exposure to the Ruble through FX risk management products such as forward contracts which will hedge the impact of further deterioration and heightened volatility. SME’s should also be aware that the fallout from Russia could create contagion into other areas such as emerging markets and potentially Europe. High yielding currencies such as the Turkish Lira and the South African Rand are already creaking on the fallout from Russia. The contagion could also spill into global markets as investors look for safe havens and away from risk. Firms exporting to Russia will need to be very dynamic with pricings as the value of a RUB now could swing significantly even intraday and this explains why Apple had to shut its Russian online stores down to avoid losses on incorrect pricing.