19 May 2020

EXCLUSIVE: Matrix Capital says supply-demand balance keeps rouble stable

The Russian rouble owes its relative stability amid the havoc wrought by Covid-19 and low oil prices to a balance of supply and demand in the foreign exchange market, according to Russian boutique asset manager Matrix Capital.

Russia’s central bank has been selling foreign currency to plug a forex market shortfall caused by a drop in oil revenues.

Simultaneously there has been less demand for foreign currency as, because of coronavirus restrictions, Russians stopped going on holiday abroad and companies slowed down business, Matrix general partner Pavel Teplukhin explained in an email interview with EmergingMarkets.me.

“If oil goes up there will be a little more supply of foreign currency in the market and the central bank will be reducing its sales of foreign currency,” Teplukhin said.

“We expect a considerable increase in demand for foreign currency from the end of summer or the beginning of autumn. People will start going on holiday and taking business trips, and by the end of the year demand for foreign currency from them will recover to its pre-crisis level,” he said.

“However, demand in industry will be recovering very slowly and this year won’t return to its pre-crisis level.”

On the whole 2020 will see lower demand for foreign currency in Russia than last year did, Teplukhin said.

The rouble will remain relatively stable at between 71 and 75 to the US dollar until the end of 2020 unless there happens anything similar to a $3bn pullout by foreign investors from the rouble-denominated OFZ government bond market in March this year, he argued.

“We may still see moves of this kind before the end of the year,” Teplukhin said.

The rouble has been relatively stable at between 73 and 75 to the dollar since April, when it largely recovered after plummeting in March because of slumping oil prices.

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