VIEWPOINT: Russian currency market to experience forex liquidity outflow through end of year - Raiffeisenbank
MOSCOW. Sept 13 (Interfax) - The currency market will continue to see outflows of forex liquidity through the end of the year, according to a Raiffeisenbank report.
The market's accumulated reserves ($18.5 billion) will compensate for a time, but as it begins to run out toward the end of the year, the ruble will weaken and the cost of forex liquidity in the local market will rise, with a widening of base spreads by 25-75 bps, analyst Denis Poryvai wrote.
"According to our model, $11 billion will be received in September-December of this year, assuming that the average ruble exchange rate remains under 65 rubles/$1 with oil prices of about $60 per barrel of Brent. This is significantly less than the volume of currency that the CBR will have to buy for the Finance Ministry under the fiscal rule ($4-5 billion per month)," he wrote.
The Federal Reserve's and European Central Bank's policies of low interest rates - quantitative easing in the amount of 20 billion euros per month will begin on November 1 - are providing significant support to the ruble, Poryvai wrote. This marks the beginning of a long phase of easing, which should translate into the weakening of the euro and dollar against GEM currencies. Potential risks are the escalation of the trade conflict between the U.S. and China and the possibility of a recession in the U.S., he wrote.
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