Russia: Higher FX Purchases In July Put Non-Oil Balance Of Payments In Focus

The increase in FX purchases in July, to US$4bn, is in line with expectations and reflects strong exports. But we doubt that high oil prices and a tighter monetary stance can offset the negative effect of accelerating goods and services imports, ongoing dividend payments, and weak local and global capital flows. We remain cautious on the ruble for 3Q21.

Higher FX purchases are in line with expectations and reflect stronger oil & gas exports

The Russian Finance Ministry announced today that monthly FX purchases will increase from June's RUB221bn to RUB296bn in July, corresponding to an increase from US$3.0bn to US$4.0bn, close to the levels seen at the beginning of 2020 (Figure 1), i.e. prior to the global Covid outbreak. The increase in July was not a surprise (we expected US$4.1bn) and was driven by continued strengthening in oil prices and an improvement in the physical volumes of oil & gas exports from Russia. From that standpoint, stronger FX intervention should be neutral for the ruble.

Based on the recent improvement in the annual average Urals assumption for 2021 from US$62.5/bbl to US$66.0/bbl, we increase our full-year current account surplus expectations from US$55bn to US$65bn. This extra $10bn will be largely sterilized by FX purchases which we now see at US$33bn for the full year (suggesting that the FX purchases in 2H21 will double vs. 1H21's US$11 bn) vs. previous expectations of US$25 bn. We note, however, that the actual FX purchases volume for the year could be reduced by $3-5bn if the government manages to finalize the plan to invest that amount annually from the National Wealth Fund in 2021-23.

Figure 1: July intervention up to pre-Covid US$4bn, sterilizing the strengthening oil & gas exports

Source: Finance Ministry, Refinitiv, ING 

Uncertainties around non-oil balance of payments force us to remain cautious on USDRUB for 3Q21

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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