Russian FX/Rates - Strong Trade Balance to Support Ruble

After the restriction of usage of part of Russia's international reserves, the ruble weakened sharply and the CBR introduced capital controls. Against this backdrop, the local and offshore FX markets diverged. Nevertheless, the ruble is beginning to show signs of stabilizing. Amid the global energy crisis, Russia's trade balance is likely to remain very strong, allowing the local currency to stabilize at around 100 against the dollar.After February 24, a series of tough sanctions were imposed on Russia by the US and its allies. Key to the FX market was the blocking of part of Russia's international reserves on February 27. As a result, the CBR was no longer able to support the ruble with interventions and the provision of dollar and euro liquidity. Once this news broke, already the same day the ruble sharply weakened, halving in value to 190 against the dollar (such a rate was observed in the apps of certain Russian banks).On February 28, in order to increase the attractiveness of ruble savings, the CBR hiked the key rate by 11.5 pp to 20%. In addition, starting February 28 the Russian authorities began to introduce capital control measures. They were aimed at supporting the supply of FX and dampening demand for it.