The ruble rises against the U.S. dollar, but falls for the fifth week in a row amid fears of a new round of sanctions ahead of President Vladimir Putin's annual address to the Federal Assembly shortly. But analysts believe that the Russian currency is already oversold and there is a chance to recover. The main reason for the recent sell-off is “concerns about negative developments that are possible anytime soon”, but the recovery of the technically oversold ruble is long overdue.

The Bank of Russia (CBR) published a quarterly report on monetary policy. It follows from the regulator’s materials that the Central Bank may need a higher pace of the key rate advancement compared to the October forecast, prompting for inflation to stabilize at 4% in 2024. In 2025, the average key rate is projected to be in the range of 5.0–6.0% per annum.

The macroeconomic forecast outlined that the “balance of inflation risks is shifted towards pro-inflationary risks”. The regulator associated pro-inflationary risks with the persistence of elevated inflationary expectations, tightness of the labor market, as well as the impact on the accelerated execution of budget expenditures.

“In our updated forecast for this year and next, the ranges for the average key rate are increased by half a percentage point, to 7.0-9.0% per annum for 2023 and 6.5-7.5% for 2024.” said Elvira Nabiullina, head of Russia’s Central Bank, in a statement.

Meanwhile, the Russian ruble fell to levels above 75 against the dollar on Friday, continuing a recent weakening trend driven by an embargo on the already price-capped Russian oil products and a robust recovery in imports, boosting demand for foreign exchange hedging tools.

At its lowest point, the ruble weakened 0.4% against the dollar to 75.25, the weakest since April 25. It shed 0.1% to trade at 79.99 against the euro and slipped 0.3% against the yuan to 10.90.

The Russian currency could face further headwinds as EU leaders discuss a new round of sanctions against Russia over its actions in Ukraine, with politicians, military leaders and Russian banks expected to be hit.

The dollar/ruble currency pair will most likely try to test the level of 75.5 rubles/$1, after which it will most probably retreat to the levels of the beginning of the previous week against the backdrop of the closing of long positions by speculators, as well as inception of the so-called tax payment period requiring domestic exporters to sell hard currency proceeds to make their mandatory budgetary payments.

The Russian Finance Ministry on Friday said it was sticking to plans to declare a budget deficit of no more than 2% of gross domestic product (GDP) in 2023, despite rising spending and falling energy revenues, leading to a huge deficit in January. So far, most evidences suggest that the current ruble’s losing streak was largely caused by psychological rather than fundamental matters.