Fundamental weaknesses to manifest – Commerzbank

USD/RUB and EUR/RUB are not market-driven exchange rates. Sanctions have decoupled the Rouble from fundamentals for the most part. Even so, the currency remains susceptible to long-term underlying pressures, which will gradually build up. A combination of sanctions on energy, falling export revenues, and brewing domestic financial stress points to a steady depreciation of the Rouble, Commerzbank’s FX analyst Tatha Ghose notes.

Initial sanctions impact illusory

“Signs of economic stress are mounting. The economy is showing signs of cooling, a view supported by the divergence between a recovering services sector and a contracting manufacturing sector. The Manufacturing PMI fell to 48.0 in October, dragged down by declining new orders and weak domestic demand. While the CBR formally rejects the notion of a recession during 2025, pointing to stable unemployment and positive quarterly growth, other institutions are skeptical. Analyst forecasts generally assume a recovery in future years, but in Russia’s case, the consensus foresees a flat growth rate in the c.1% region.”

“The government-affiliated think-tank CMASF recently downgraded its 2025 GDP growth forecast to 0.8-0.9%, aligning with international bodies and citing the negative impact of excessively tight monetary policy. The stress in the economy creates a dilemma for the CBR. On one hand, the weakening economy calls for monetary easing – a point being made forcefully by key policymakers outside of the central bank. On the other hand, CBR remains concerned that rapid rate cuts could fuel excessive credit expansion and inflation. The bank has pointed to an insufficient slowdown in lending to highly leveraged large companies and has responded by tightening macroprudential limits and increasing risk-weight surcharges for such borrowers.”

“The fundamental imbalances that were masked by buoyant energy prices in the initial years are now being exposed. Taken together, the combination of an overdue economic downturn, a cautious but still easing central bank, still elevated inflation expectations and intensifying pressure on export revenues because of sanctions enforcement argues for a weaker Rouble. We maintain our forecast for USD/RUB and EUR/RUB to trend steadily upwards through 2026 and 2027.”