By Katya Golubkova and Andrey Ostroukh
MOSCOW, Feb 5 (Reuters) - Russia's rouble is no stranger to domestic political turmoil but recent anti-Kremlin protests over the fate of opposition politician Alexei Navalny have left the currency more exposed than in the past as markets re-assess the risk of sanctions.
The rouble slipped to a near-two month low of 76.50 to the dollar RUBUTSTN=MCX last week as fears over new curbs from a new U.S. administration under Joe Biden more than offset a 10% jump in crude oil prices since the start of the year and healthy economic fundamentals that shielded the currency in the past.
"Current pressures on RUB are primarily geopolitics-driven, considering the context of supportive emerging market sentiment and stabilizing oil prices," said Phoenix Kalen at Societe Generale.
"Market participants are anxious regarding the extent of the Western backlash against Russia in response to the government’s crackdown on protests by Navalny supporters," Kalen said.
There was no clarity on what measures Western countries might adopt and what sanctions might be considered, Kalen said.
The rouble has weakened some 3% since the start of the year to hover around 75 to the dollar. When oil prices last hit current levels in February 2020, the currency traded at around 63.5.
"In the past week, we have turned neutral on RUB near-term given the increase in external tensions and a subdued external balances outlook," Deutsche Bank's Peter Sidorov said.
A Russian court jailed Navalny for parole violations on Tuesday for two years and eight months in prison. Last night, the opposition has called off new protests, over the past two weeks driven by Navalny's arrest and jailing, until spring and summer.
The protests have pushed up the currency's geopolitical premium.
"The rouble is clearly fundamentally undervalued," Sberbank CIB, the investment-banking unit of Russia's top state bank, said in a note. "We estimate the geopolitical premium for the rouble rate at 10-15%."
The authorities' have said protests were illegal.
In 2018, the geopolitical premium for the rouble rose to around 11%, or seven roubles to the dollar. Recently it jumped by another six roubles, said Artem Zaigrin, chief economist at Sova Capital.
A weak rouble dents living standards by making imports more expensive and stirs public discontent by accelerating inflation, which reached 5.3% by end-January, above the central bank's 4% target.
That limits room for more rate cuts which could help support Russia's economy which suffered its sharpest contraction over a decade last year.
Russia has faced street protests on and off since late 2011 when the opposition, including Navalny, called on people to take to the streets after parliamentary elections they said were rigged, something the authorities denied.
More protests ensued when Putin returned to the presidency in 2012 after a four year hiatus. But back then, the rouble reacted more to oil prices than politics despite large anti-Kremlin protests which saw scores of protesters jailed and drew strong Western condemnation.
When Russia was again rocked by street protests against an increase in the retirement age in 2018, and by protests over Moscow parliamentary elections in 2019, the rouble was again largely untroubled.
"An increased standoff between civil society and the authorities is obviously a threat to the economy," said Evgeny Suvorov, an economist at CentroCreditBank.
The latest rouble decline comes against a generally benign backdrop for emerging markets. Some analysts say investors flows to Turkey, which has ramped up interest rates to the highest level across major developed and developing economies, could have contributed to pressure on Russia.
Alfa Bank, Russia's top private bank, sees the rouble rate at 75 per U.S. dollar by end-2021 and expects it to weaken beyond this month on sanctions fears.
"Foreign investors are unlikely to increase their presence on the Russian markets given sanctions concerns," Natalia Orlova, chief economist at Alfa Bank, said in a note this week.
"Russian risks are mainly tied to non-economic issues."
Rouble reaction to street protests in Russia in 2011-2013https://tmsnrt.rs/36wP7Pi
Rouble reaction to street protests in Russia in 2018-2019https://tmsnrt.rs/2YCjGif
Russia's rouble: Oil vs politicshttps://tmsnrt.rs/2MYMu1F
(Reporting by Katya Golubkova and Andrey Ostroukh Additional reporting by Karin Strohecker in London Editing by Andrew Osborn and Angus MacSwan)
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