Surprise change of government in Moscow leaves rubles cold

In his annual State of the Union address yesterday, Russian President Putin announced a series of constitutional changes that would give both parliament and government more powers, but would curtail the power of the president. Mr Putin wants the people to vote in a referendum on the overall package of planned changes. Immediately after this unexpected announcement, the Russian government, led by Prime Minister Medvedev, resigned as one. The latter said he wanted to give the president room for the planned amendment of the constitution with this step. The new head of government is to be the head of the tax authorities, Mikhail Mishustin, while Medvedev is to become deputy chairman of the National Security Council. It is not unlikely that with the planned constitutional amendment Putin is working on his retention of political power for the period after 2024. Thus, his second and thus last possible term as president will end, as the constitution currently provides for only two consecutive terms of office (although Putin is aiming to limit this to two). A further period as Prime Minister and thus as head of government is possible, however.

In the end, the rouble is not very impressed by the surprising developments in political Moscow and instead continues to present itself in a robust constitution both against the euro and the US dollar. The fact that it sees no reason for nervousness is probably largely due to the fact that, despite the replacement of the entire government team, it is not threatened by any political uncertainty, as President Putin continues to hold the reins in the Kremlin.

Other factors, such as the oil price development, the global EM sentiment or the monetary policy response of the Russian central bank to the significantly reduced price pressure should therefore continue to play a role for the rouble. In our view, this should not threaten the rouble in the short term. The emerging market currencies, which are considered to be risk-sensitive, are still influenced by investors' search for returns and the current trend towards geopolitical and trade policy easing. Moreover, the ruble can continue to rely on the prudent monetary policy actions of its currency guardians.

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