RUB: Orderly government reshuffle not too detrimental for the rouble
We don’t see the Russian government reshuffle (Prime Minister Dmitry Medvedev replaced by Mikhail Mishustin) as overly negative for the rouble at this point. The orderly nature of the reshuffle suggests limited scope for political risk premium being priced into the rouble, while concerns about possible irresponsible fiscal easing (which could reintroduce a credit risk premium into the currency) are not justified at this point. The currency still benefits from one of the highest real rates in the EM FX world and remains undervalued within our BEER valuation framework. At this point, one of the biggest risks to RUB is a possible reversal in the foreign holdings of OFZs (which grew meaningfully last year). However, for this to happen, the market needs to first see evidence that possible fiscal stimulus would be of a magnitude to meaningfully change growth and inflation dynamics. At this point, this is not the case in our view. Our bias remains for a higher USD/RUB in coming months (back into the 62-64 range) due to the combination of a shrinking current account surplus and stable or growing FX interventions.
