rouble

Russia has picked a symbol for the rouble kitting out the five centuries old national currency with a contemporary new look to rival the US dollar ($), the British pound (£) and the Japanese yen (¥) . It’s time for traders to take the rouble more seriously.

Hit by hyperinflation in the chaotic early 1990s and then by repeated devaluations, Russia’s rouble has become associated with trouble since the Soviet Union collapsed. 

Having attracted less interest from investors in the good times, Russia has made fewer headlines in the recent emerging markets turmoil than its fellow Brics – Brazil, India and China.

But its currency, bond and equity markets have suffered quite badly in the sell-off triggered by the US Fed’s plans to end quantitative easing. And sharp falls on Thursday prompted by a sudden sell-off in crude raise questions about Moscow’s ability to keep Russia’s flagging oil-fuelled economy moving in the coming months. 

Russia lambasted Japan and other countries this week for deliberately weakening their currencies to gain competitive advantage in global trade. Alexei Ulyukayev, the central bank’s first deputy chairman said: “We’re on a threshold of very serious, confrontational actions in the sphere that is known… as currency wars.”

So how come Russia itself is buying dollars to weaken its own currency? 

European banks are scrambling to issue rouble-denominated bonds as they take advantage of moves to liberalise Russian capital markets as well as growing demand from domestic investors for unsecured bank debt, write Mary Watkins and Philip Stafford on FT.com.

HSBC’s Russian arm has applied to the Central Bank of Russia to issue the bank’s first rouble-denominated bonds. The programme would allow the bank to issue a maximum of Rbs10bn ($324m) in two tranches. 

Bruce Bower of Verno Capital.

Market watchers have been preoccupied with a myriad of crises over the last three years, but it is still surprising that the world seems to have missed an important fundamental change in Russia’s economy.

Since 2009, Russia has abandoned fixed or managed exchange rates and moved towards a freely floating rouble. Monetary policy and interest rates, previously set by global financial markets, are now managed by the Central Bank of Russia (CBR) in an inflation-targeting system similar to most western central banks. The benefits are obvious: the economy now has a shock absorber to offset volatile movements in the price of oil and international capital flows. How will this benefit investors? 

For weeks, bankers and analysts have been cautioning about how much money is flowing out of Russia. Now we know how much.

According to a report by the central bank, capital outflows reached $18.7bn last quarter and a whopping $13bn during the month of September alone. 

August has been an unusually quiet month for Russia, with fires, coups and wars conspicuously absent. In fact, the only area that is seeing the usual August excitement is the country’s currency market.

Since the start of the month, the rouble has managed to lose all of its 2011 gains and then, just as easily, post its biggest three-day advance in over two years.

While the rouble’s quick descent earlier this month has created a great deal of uncertainty on the market, analysts have been quick to point out how the volatility actually shows the positive evolution of the central bank’s monetary policy.