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Russian currency overvalued, may extend losses to 70-75 rubles per dollar — Sberbank CIB

December 08, 2015, 16:38 UTC+3 MOSCOW

Experts at Sberbank CIB assume that "an RTS Index at around 800 seems to be fairly priced"

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© Alexandra Mudrats/ITAR-TASS

MOSCOW, December 8. /TASS/. The Russian national currency is slightly overvalued and may extend losses, Sberbank CIB said in its daily investment research note on Tuesday.

According to the report, "the ruble is slightly overvalued at its current level of 69 and could fall to 70-75 rubles per US dollar." Meanwhile, experts at Sberbank CIB assume that "an RTS Index at around 800 seems to be fairly priced."

On Monday, the RTS Index fell below 800 points mark first since October 6 following the ruble’s losses due to plummet of crude oil prices after OPEC’s decision to raise its production cap. The dollar exchange rate surged by 1.36 rubles to 69.49 rubles, which is the highest rate since August, while the euro exchange rate rose by 1.31 rubles to 75.37 rubles.

Russian stocks were dragged down by collapsing oil prices. The cost of the futures contracts of Brent crude oil for January 2016 delivery on London's ICE trading plummeted on Monday by 5.6% to $40.6 per barrel, record low since February 2009.

According to Sberbank CIB analysts, the market is likely to follow oil further on. "Our long-standing rule of thumb has been that fair value for the RTS is 20 times the price of Brent, plus or minus some geopolitical adjustment," the report said.

"The ruble will likely continue to work as the economic shock absorber. As a result, the oil price fall will mostly affect nominal numbers, while real indicators will be only marginally affected, as has been the case in the past: Russia’s dollar GDP fell by 40%, from $2.1 trillion in 2013 to $1.25 trillion in 2015, while real GDP declined by only 2%. The rest was absorbed by the currency’s decline," Sberbank CIB said.

For the currency and the economy, the risks are on the policy side. "We expect the Central Bank of Russia to make a 50 bps rate cut at its Friday meeting, but the bank could also choose to postpone its cut cycle further in an attempt to shore up the ruble and counter inflation," experts at Sberbank CIB wrote, adding that "rate cuts are needed to spur forward the economic recovery" in Russia.

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