USD/RUB: Vivid Rouble depreciation could be symptomatic of sudden capital outflow – Commerzbank

Recently, Russia’s Rouble exchange rate depreciated in an accelerated manner. Economists at Commerzbank analyze what is behind the Rouble weakness. 

Depreciation a consequence of capital flight?

The USD/RUB exchange rate is entirely managed by CBR. Russia’s capital account is largely shut for hard currencies such as Dollar, Yen or Euro by Western sanctions. Neither can rate hikes attract foreign capital nor can domestic capital easily leave because of a negative economic outlook. 

Under these circumstances, it is unusual that sudden pressure could arise on the central bank’s managed exchange rate. This raises alerts that channels for sanction-evading capital outflow may have opened up. This will always be difficult to verify or analyse formally, but if this is true, then the regime could easily face a major challenge with financial stability. 

The capital looking to exit Russia is probably structurally motivated, and no amount of central bank rate hikes will be sufficient to reverse such incentives.