The CBR might raise interest rates in the next meeting.

The Russian ruble weakened once again after appreciating nearly 6% to 84 rubles per US dollar, as investors continued to adjust to US sanctions. This was further supported by the Central Bank of Russia’s decision to maintain the interest rate at 16% and signaling a potential rate hike in the upcoming meeting. Additionally, the ruble was bolstered by substantial capital controls, with the latest information indicating that these measures have been extended until the end of April 2025. These controls mandate that most exporters convert at least 80% of their foreign currency earnings to Russian banks within 120 days of receipt.

The Central Bank of Russia kept the interest rate at 16% for the fourth consecutive time in the June meeting. This could lead to an interest rate hike in next month’s meeting, as the CBR sees domestic demand still exceeding the current production capacity of the Russian economy, creating an imbalance between overall demand and supply and increasing inflation risks.

Inflation in Russia rose to 8.3% year-on-year in May, marking a new high for the year. The increase is primarily due to Western sanctions, causing a continuous surge in prices of goods and services within the Russian economy. This inflation data aligns with signals from the Central Bank of Russia, which expects various economic indicators to enter a crisis phase. Higher costs and slowing foreign demand will directly impact Russian consumers and drive inflation beyond the central bank’s previous forecasts. Inflation in the service sector rose by 8.55%, while inflation in the manufacturing sector increased by over 8.19%.

Additionally, rising product prices continue to stem from the complexity of crude oil refining, which has significantly increased costs for oil and natural gas producers by more than 43.4%. This cost hike has raised expenses across several industries, straining domestic consumer spending capacity.

Russia’s GDP grew by 5.4% year-on-year in the first quarter of 2024, slightly above the market forecast of 5.3% and up from 4.9% in the fourth quarter of 2023. This growth was driven by increased production, as Russia showed a slight recovery from the 2022 crisis caused by Western sanctions following Russia’s invasion of Ukraine. However, investors remain skeptical about the sustainability of this recovery, as most of the expansion has been supported by government investment, particularly in weapons and ammunition for the ongoing war.

Techical analysis data (5H)

Resistance: 89.8043, 90.7303, 91.9534

Source: Investing.com

Buy/Long 1: If the price touches support in the price range of 86.4319 - 87.6551 but cannot break the support at 87.6551, you may set a TP at approximately 90.7303 and SL at around 85.506 or according to your acceptable risk.

Buy/Long 2: If the price breaks the resistance in the price range of 89.8043 - 90.7303, you may set a TP at approximately 91.9534 and SL at around 86.4319 or according to your acceptable risk.

Sell/Short 1: If the price touches resistance in the price range of 89.8043 - 90.7303 but cannot break the resistance at 89.8043, you may set a TP at approximately 86.4319 and SL at around 91.9534 or according to your acceptable risk.

Sell/Short 2: If the price breaks the support in the price range of 86.4319 - 87.6551, you may set a TP at approximately 85.506 and SL at around 90.7303 or according to your acceptable risk.

Pivot point June 21, 2024 08:53 PM. GMT+7