2016.06.1606:56:00UTC+00Correlation Between Crude Oil and Ruble Begins to Fade

In the past month, the Russian ruble was one of the best performing emerging market currencies, lifted by higher global oil prices. However, the correlation between the Russian ruble and crude oil is beginning to fade with lower local currency interest rates, noted Lloyds Bank in a research report.

The Bank of Russia, in June, surprisingly lowered its key interest rate by 50 basis points to 10.5 percent. This was its first reduction since July 2015. The central bank is likely to further lower rates in the remainder of 2016 as lower inflation and subdued growth exert additional pressure on the CBR to ease policy.

Moreover, there has been an increase in the risk of the central bank intervening in the foreign exchange market. Restocking FX reserves and aiding to better balance the CBR’s fiscal budget are decent reasons to anticipate buying of US dollars, according to Lloyds Bank.

“A high level of currency risk premium, due to increased political risk related to holding rubles, should also likely provide a fundamental floor for USD/RUB, particularly in light of further Fed policy tightening,” added Lloyds Bank.