Where Is The Russian Ruble Headed?

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Includes: RBL, RSX
by: Andrew Sachais

Summary

Russian inflation continues to rise.

Meanwhile, economic sentiment and retail sales are falling.

Although the Russian economy continues to deteriorate, much of the news has already been priced into its asset market, meaning the ruble could trade sideways over coming months.

The Russian ruble continues to deal with rising inflation, and lower growth prospects, but the ruble looks to have reached the peak of its fall. Since last July, the U.S. dollar appreciated against the ruble by nearly 75%, seen below.

Data provided by Trading View

As its currency rapidly declined, Russian inflation spiked higher. In February, the inflation figure came in at an annual pace of 16.7%, above the previous month's reading of 15%, as well as exceeding estimates for 16.6%. Since summer of 2014, inflation has risen from under 8%, to current levels. The rise in consumer prices has been very broad, ranging from energy to leisure costs.

"Food and non-alcoholic beverages surged 26.1 percent, following a 22.8 percent rise in the previous month. Sugar cost increased 67.1 percent, cereals and legumes went up 51.5 percent, fish and sea products increased 30.8 percent and meat and poultry prices rose 25 percent.

Additional upward pressures came from transport (12.8 percent), housing, water, electricity and gas (9.8 percent), clothing and footwear (8.5 percent), alcoholic beverages and tobacco (15.5 percent) and hotels, cafes and restaurants (10.8 percent)," according to Trading Economics.

Meanwhile, economic activity in the region also fell. In January, the lead economic index figure came in at -1.5%, below the previous month's reading of 0.2%. In Russia, "the leading Economic Index refers to a year on year GDP growth change," according to Trading Economics. Over the last year, the index has fallen from near 2%, to current levels, seen below.

Moreover, retail spending also declined alongside overall economic confidence. In January, the retail sales figure came in at a -4.4% annual contraction, down from the previous month's figure of 5.3%, as well as missing estimates for 1.06%. January's retail reading was the first contraction over the last few years, seen below. With inflation rising as quickly as it has, worker paychecks are unable to buy as much as it previously could.

"The drop in consumption, which accounts for about half the economy, is the latest blow for President Vladimir Putin as Russia lurches into recession following the oil rout and U.S. and European sanctions over Ukraine.

The fastest inflation rate in almost seven years and the ruble's 46 percent slump in 2014 are eating into workers' paychecks, putting Russia on track for the biggest drop in consumption in more than two decades," according to Bloomberg.

The Russian economy continues to slow, but markets have largely priced in the extent of the decline as of now. With the ruble's steep decline the last few months, it will likely take another negative catalyst to push its exchange rate even lower against foreign currencies. Expect sideways trade, to slight strength in the ruble over the next few months.

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