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Experts allowed the ruble to fall by 20% during the escalation in Ukraine

Military escalation in Ukraine and tough sanctions could lead to a depreciation of the ruble and, as a result, a tightening of the Central Bank's policy and foreign exchange interventions to ensure financial stability, Renaissance Capital analysts say

In the event of a military escalation in Ukraine and the imposition of tough sanctions against Russia like the “Robert Menendez package” the ruble may fall sharply in price, and Russian regulators— take urgent measures to stabilize the financial market. This is stated in the review of the investment company “Renaissance Capital” (available from RBC).

“In this case, we expect that the outflow of funds from the debt and, more importantly, the stock markets may approach the indicators of 2014-2015 (the beginning and acute phase of the conflict in the east Ukraine.—RBC), with the depreciation of the ruble up to 20%, the expansion of the country risk premium by 200 basis points and a comparable tightening of the monetary policy of the Central Bank, — says in the materials of “Renaissance Capital”.

Economist at Renaissance Capital Sofia Donets explained to RBC that part of the depreciation of the ruble (about 5%) due to tensions in Ukraine has already been realized: the ruble is now trading at the levels of 76 & ndash; 77 rubles. per dollar. The risk scenario with military escalation will mean that at the moment the dollar exchange rate can reach 85 & ndash; 90 rubles. The expansion of the country risk premium implies that by 200b.p. the gap between the yield on Russian foreign currency Eurobonds and the yield on benchmark US government bonds will widen. However, “if we attribute a 15% probability to the military scenario, then the “soft escalation” scenario there will be at least 40% probability, — analysts of the investment company noted.

Experts predict that in the worst case scenario due to the “liquidity squeeze” Russian regulators may need to take emergency measures such as imposing capital controls, fees for non-residents on the sale of federal loan bonds (OFZs) to slow down foreign capital flight, etc. Also, the authors of the material do not rule out foreign exchange interventions by the Central Bank to ensure financial stability. Since the Bank of Russia switched to inflation targeting and a floating exchange rate, it has practically not carried out its own foreign exchange interventions, but it has the right to use such an instrument in emergency situations, for example, to contain a potential collapse of the ruble.

Experts recall that the United States has developed a draft of new restrictions, which includes, in particular, a complete ban on transactions with Russian government bonds, sanctions against major Russian banks, officials, tightening restrictions on the Nord Stream 2 gas pipeline, elements of sectoral sanctions in in relation to Russian industries for the extraction of mineral raw materials. Also, the American media wrote that the administration of US President Joe Biden had prepared a package of sanctions measures, including — restrictions on the export of consumer technology to Russia, such as smartphones.

“Three rounds of negotiations between Russia, the United States, NATO and the OSCE this week did not lead to progress,”— remind experts of “Renaissance Capital”.

On January 12, the US Senate published a draft of a new package of sanctions prepared by the Democrats against Russia's public debt, the banking sector and the country's leadership, including against President Vladimir Putin.

Russia rejected reports of planned “aggression” regarding Kiev. Presidential spokesman Dmitry Peskov called the “outrageous measure” the imposition of likely restrictions against Putin and warned that they could lead to a complete cessation of relations between the countries.

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