Monday 27 March 2023 \


Deutsche Bank: ruble among most undervalued currencies

The ruble ranked among the top three undervalued world currencies, according to Deutsche Bank's Behavioral Equilibrium Exchange Rate (BEER). It is 15% weaker than its "fair rate," the bank's economist said. In the review of Deutsche Bank, the analyst predicts the strengthening of the Russian currency to 60 rubles per dollar.
The term behavioral equilibrium exchange rate comes from Peter Clark and Ronald MacDonald (1999). The BEER approach uses econometric methods to establish a behavioral link between the real rate and relevant economic variables.
The top-3 also includes the Turkish lira (-46.2%) and the Colombian peso (-22.2%). The top 5 excessively strong currencies are the Czech crown, South Korean won, Thai baht, the dollar and the Swiss franc. As follows from the review of Deutsche Bank, the dollar is overvalued by about 7%.
According to the bank, there are several factors supporting the ruble: the Russian Central Bank's position, a high rate and foreign exchange reserves, the forthcoming increase in the correlation with oi , as well as the suspension of foreign-exchange purchases under a budget rule.
Macroeconomic stability also supports the ruble, according to the release. Among the Russian economy's strengths are high real rates, a positive current account balance, a good budget balance and a high reserve coverage ratio.
According to the analyst, the sanctions is the main and almost the only threat to the ruble. The continuing uncertainty adversely affects the sentiment of market participants. American investors are likely to refrain from investing in Russian assets, the analyst of Deutsche Bank concludes.
The advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house, economist Sergey Hestanov, speaking with Vestnik Kavkaza, noted that a single true methodology allowing to objectively assess the exchange rate does not exist. "Therefore, indeed, the ruble is strongly underestimated. But it is important to understand that the reason for such underestimation is the so-called sanctions risks. And some investors actively sell rubles, which leads to a significantly different price. Therefore, the ruble is significantly underestimated in theory, but in practice this underestimation is counterbalanced by sanctions and political risks," the expert explained.
"Any factors raising concerns among investors, lead to the fact that they agree to buy this currency only at a serious discount, which forms an underestimation," the advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house noted.
"Russia is an exporter, and in this case a strong ruble is undesirable for the Russian economy, that is, a weak ruble helps the economy grow," Sergei Hestanov said.

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