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

With oil & gas exports effectively sterilized by the FX purchases, the non-oil & gas portion of Russia's balance of payments should now come into focus. We believe the current account surplus for 2Q21, to be reported on 9 June, should be in a strong US$15-20bn range after US$23bn in 1Q21. But our concern is that in the second half of the year, a quick acceleration of merchandise imports (driven by the faster than expected economic recovery), and the reopening of popular foreign tourist destinations could put pressure on the non-oil current account.

The resulting contraction in the monthly current account surplus from US$5-10 bn in 1H21 to US$3-5bn amid stable FX purchases could leave the local FX market exposed to the risks related to the capital account. According to the recent estimates, the private sector's net capital outflow stood at US$18bn in 1Q21 and may remain strong in 2Q21. Meanwhile, portfolio flows to the local public debt market (OFZ) remain weak (according to our estimates, 2Q21 saw net outflows of $0.2bn after -US$2.5bn in 1Q21) and subject to risks related to foreign politics and global USD trends. Finally, we do not see the tightening in Russia's monetary policy as a strong factor of support to the ruble, as the higher expected nominal key rate trajectory reflects higher CPI expectations, which should be largely neutral from the ex-ante real rate perspective.

As a result, acknowledging the improved oil price and rate context for the ruble, we maintain our cautious view, suggesting that in 3Q21, the balance of risks to USD/RUB are tilted towards weakening to the upper border of the wide 70-75 trading range. The period from mid-July to mid-August, when the large corporate dividend payments are finalized, will be an important stress test to this view.

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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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