The Russian rouble could hit 70 to the dollar by the end of the year, as it faces the "perfect storm" of a deepening oil price slump, heavy foreign debt repayments by Russian firms and a surging US currency, Sberbank CIB said on Wednesday. "There are strong risks the rouble could reach 70 to the dollar by year-end," said Tom Levinson, chief forex strategist at Sberbank CIB, the investment banking arm of top Russian lender Sberbank.
The Russian currency is down some 13 percent against the greenback in the past month, hurt mostly by a renewed slide in oil prices. At 1215 GMT it was trading at 65.7 against the dollar, up 0.2 percent on the day. If Brent crude drops to $45 or even $40 a barrel the rouble will inevitably hit 70 to the dollar, Levinson said. Sberbank CIB expects rouble weakness to prevent the central bank from extending a monetary easing cycle at its next meeting on interest rates on September 11.
Levinson said the central bank would probably hold fire as the weaker rouble poses risks for inflation, and wait to see whether the US Federal Reserve raises rates later in September. A Fed rate rise would boost the US currency and send shockwaves through emerging-market currencies worldwide. The central bank could also relaunch its one-year forex repos towards the end of the year or roll over one-year repos which banks conducted late last year if pressure on the rouble threatens financial stability, Levinson said.