Oil price collapse lowers Russian ruble’s fair value

Last week, the Russian finance ministry claimed that the ruble was “extremely undervalued”. Admittedly, it made the claim when the currency was around 70 to the dollar, and the exchange rate has since strengthened to 55. But given that the rate was not much above 40 a couple of months ago, we suspect it would continue to assert that the ruble was mispriced. We are sceptical that this is the case, though, since the deterioration in Russia’s terms of trade that has resulted from a lower price of oil will have reduced the equilibrium level of the ruble substantially. Granted, the price of oil appears to be finding some support around $60 per barrel. But we don’t expect it to rebound sharply.