Russian macro: the ruble’s dependence on oil to increase if the latter climbs further
As the oil price has climbed close to $80/bbl, and it cannot be ruled out that the upward trend will continue, the ruble has remained relatively weak and has not yet appreciated to below USD/RUB 72. With the oil price fluctuating between $70 and $75/bbl the USD/RUB exchange rate fluctuated within the 72-74 range, with some occasional deviations caused by various factors, such as the scale of Minfin’s FX interventions, changes in policy rates by the Russian Central Bank and by major global banks, and many others. However, the oil price remains the most important factor longer term. The key question is how the role of the oil price as the main factor affecting the ruble evolves over time.
As the oil price climbs higher, the relative importance of other factors influencing the exchange rate diminishes. The chances of “other factors” emerging during a relatively short period to influence the exchange rate are lower than over a more extended time frame. Hence the higher the oil price, the more strongly the exchange rate depends on it – at least until some shock hits the Russian economy.
If we assume no strong external shocks are coming, and if the oil price hits $80/bbl and moves well above this level, then the chances that the ruble can appreciate to below USD/RUB 72 and get close to 70 will increase. However, the longer Russian inflation stays well above US inflation, the more it will resist the appreciation of the ruble in nominal terms.
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