Group Economics
EM FX Weekly
Macro & Financial Markets Research Georgette Boele, Roy Teo, Peter de
Ruble outperforms
Bruin, Marijke Zewuster +31 20 6297789
18 June 2015
Russian ruble outperforms and CBR cuts rates by 100bps to 11.5%, resumes FX purchases More negative on the Brazilian real Asian currencies lacking direction
Russian ruble outperforms
rise in almost every category, reaching 8.5% yoy in May, up
This week the Russian ruble was the best performing
from 8.2% in April. Most of the price increase is due to the
emerging market currency mainly because Brent oil prices had
fiscal adjustment that is currently taking place. The central
some upward momentum. Earlier in the week, the Central
bank has remained vigilant. Therefore, one or two more rate
Bank of Russia (CBR) cut its key rate by 100bps to 11.5%.
hikes are likely in our view. Meanwhile, the central bank has
Since the end of last year, when Russia was in the midst of a
signalled via lower interventions that it is comfortable with a
financial crisis that forced the CBR to hike rates to 17% to
possible weakening of the real. To take all the above into
defend the ruble, rates have been lowered by a cumulative 5.5
account, we now expect a further weakening of the real versus
percentage points. The central bank signaled that the pace of
the US dollar in 2016. Our new year-end 2016 forecast is 3.4
monetary easing is likely to moderate a bit going forward as
in USD/BRL.
inflation expectations could become dislodged. Inflation, while starting to come down, is still high, at 15.8% in May. Another
Asian currencies lacking direction
reason that could prompt the CBR to be cautious in reducing
Asian currencies lacked direction in the past week. The
rates is that it is continuing its FX purchases at a daily pace of
Singapore dollar, given its high sensitive to interest rates in the
around $200 million. This also leads to a looser policy stance.
US, gained due to market expectations that the Fed will raise
However, with the economy falling ever deeper into recession,
interest rates at a slower pace. The outlook for the South
we think that the central bank will be forced to continue
Korean won remains weak as concerns linger that the Middle
loosening policy. As such, we expect CBR’s key rate to be cut
East respiratory syndrome (MERS) outbreak will hurt
to 9% at the end of this year. As the CBR’s decision was
household consumption and the service sector. Separately,
expected, it did not affect the ruble.
short term volatility expectations in the onshore Chinese yuan have declined to the lowest level since 2010. Market
Russian ruble moves in tandem with oil prices
expectations are that the Chinese authorities will keep the
USD/RUB
yuan stable ahead of the upcoming IMF review on the yuan
Brent oil price (inverse scale)
80
0
70
20
60 50
inclusion in the SDR basket. Looking ahead, we maintain our slightly bearish view that the yuan will decline towards 6.30
40
against the USD later this year based on economic
60
fundamentals.
80
40
100
30
120
20
140 11
12
13
USD/RUB (lhs)
14
15
Brent oil price (rhs)
Source: Bloomberg
More weakness in Brazilian real We have adjusted our GDP forecasts for Brazil for Q2 downwards (see our Brazil Watch: Growth Down, inflation up). The first data available for Q2 point to a deeper recession. Despite the sharp economic slowdown, inflation continues to
ABN AMRO emerging market currency forecasts USD/CNH USD/INR USD/KRW USD/SGD USD/THB USD/TWD USD/IDR USD/RUB USD/TRY USD/ZAR EUR/PLN EUR/CZK EUR/HUF USD/BRL USD/MXN USD/CLP
18-Jun 6.21 64 1,107 1.33 33.65 30.79 13,325 54 2.71 12.25 4.16 27.50 311 3.06 15.25 638
Q2 2015 6.22 64 1,100 1.34 33.50 30.80 13,200 53 2.65 12.00 3.95 27.50 310 3.05 15.25 630
Q3 2015 6.26 65 1,130 1.37 33.80 31.30 13,500 52 2.85 12.20 3.95 27.50 315 3.15 15.50 630
Q4 2015 6.30 65 1,130 1.40 34.00 31.50 13,700 50 2.85 12.20 3.90 27.50 320 3.20 15.50 630
Source: ABN AMRO Group Economics
Q1 2016 6.35 65 1,140 1.42 34.50 31.80 13,800 48 2.85 12.20 3.85 27.40 320 3.20 15.25 635
Q2 2016 6.37 66 1,150 1.43 34.80 32.00 13,900 47 2.85 12.20 3.85 27.25 325 3.25 15.25 640
Q3 2016 6.38 66 1,150 1.44 34.80 32.20 14,000 46 2.85 12.20 3.85 27.00 325 3.30 15.00 645
Q4 2016 6.40 66 1,150 1.45 34.80 32.50 14,100 45 2.85 12.20 3.85 26.75 330 3.40 15.00 650