- In this daily, we compare different ruble crises
- As in this crisis, sharp falls in oil prices have led to severe falls in the ruble,…
- …though when compared to earlier periods, CDS spreads have remained low
- While downside risks have risen, a rebound in oil prices should help the ruble to stabilise
A new ruble crisis?
USD/RUB has increased more than 62% since the start of this year. This is a very substantial depreciation of the Russian ruble. The reasons are well-known. The Russia/Ukraine crisis, subsequent sanctions, and the dramatic sell-off in oil prices have seriously undermined the sentiment towards the ruble. This has resulted in capital outflows. About a month ago, the central bank decided to let the ruble float. However, this has only temporary halted the sell-off. A continuation of oil price weakness caused a free-fall in the ruble. Investors are seriously worried about a new ruble crisis. In fact, the sell-off so far this year signals that we are currently at the epicentre of one. In this daily we compare different ruble crises.
Oil price weakness and recovery of Russian stocks coincided with ruble weakness
There are parallels between the current ruble sell-off and previous sell-offs. First, in 2008, the slide in the ruble coincided with a 70% drop in oil prices. In the run-up to the 1998 ruble crisis, oil prices lost more than 50% in 1997-1998. Oil price weakness this year was a major driver of a sharp deterioration in sentiment towards the ruble as well (see graph). So in short, sharp Brent oil price weakness precede and/or coincide with a sharp deterioration in the ruble.
Second, and perhaps surprisingly, Russian stocks, while being volatile, are so far up this year. In the period June 1998 to March 1999, USD/RUB increased from around 6.20 to 31.95, a ruble depreciation of more than 400%. In the months leading to this fall, Russian stocks were aggressively sold off. Still, their recovery started a month later and in the end, stocks completely clawed back their losses. During the global financial crisis, Russian stocks were hit before the ruble was sold off, but started to recover when the ruble was in a fierce sell-off wave, though they never completely made up their losses. So, in previous periods of ruble weakness, sell-offs in Russian stocks often preceded ruble weakness, but they often recovered at the height of the crisis.
Wider CDS spreads, but no sign of default
The sell-off in 1998 coincided with an actual default. However, currently, CDS spreads are still relatively low compared to the levels in 2008 and 2000 (there is no data before 2000). Still spreads have risen sharply over the past weeks, indicating that worries are building.
Russian data holding up better than expected
Russian data are, so far, holding up relatively well. The rise in November’s manufacturing PMI to 51.7 from 50.3, easily beat expectations, and – according to our estimates – October’s round of data suggest that y-o-y GDP growth slowed to 0.6% in Q4, only modestly down from 0.7% in Q3. Clearly, the recent acceleration in ruble weakness has gone hand in hand with more capital outflows, and will lead to a surge in inflation, signalling more economic weakness, going forward. But for now, the economy is stagnating, and is not falling off a cliff.
The ruble remains very volatile. Political news adds to the current negative sentiment. However, the most important driver remains the oil price. As our energy analyst thinks that oil prices will rebound, this should take away a major negative and help the currency to stabilise. That said, political risks remain large.