Russia: RUB May Get A Boost From De-Facto Easing In The Fiscal Rule

...which is a de-facto easing in the fiscal rule...

Without going into the intricacies of the CBR's balance sheet and its relationship with the National Wealth Fund (you can find out more on topic in our previous reports), our initial take on the scheme is that in terms of potential effect on the markets it meets all the criteria of easing in the fiscal rule, as without any changes in the key official macro forecasts (such as oil price, exchange rate, GDP growth) it results in:

  • lower accumulation of FX savings in the National Wealth Fund (a large chunk of FX assets will be replaced with RUB equity)
  • lower amount of FX purchases to be conducted on the local market
  • extra budget spending to be financed without the need to increase local borrowing

In fact, we have recently indicated that following the government reshuffle and extra budget spending the topic of easing in the fiscal rule will come to the forefront. We believe the announced SBER handover scheme is a way of making that easing without formally increasing the base Urals price (currently at US$42.4/bbl, increases by 2% per annum) that regulates the distribution between saved and spent oil revenues of the budget. Alternatively, the SBER stake could have been transfered via an off-market transaction between the government and the CBR (that would have been neutral for the market), or government could have financed the purchase of SBER via an increase in the state debt (that would have been an equivalent of no change in fiscal rule, but put additional pressure on the debt market already facing significant RUB1.5-1.8 tr annual net supply of state bonds).

...by US$2-8/bbl, suggesting USDRUB 0.5-1.5 upside to our outlook

All else being equal, the upcoming decline in the CBR FX purchases is a positive development for the ruble exchange rate. The scale of the effect will largely depend on the details of the market FX operations, which are in fact not regulated by the budget rule and remain at the discretion of the CBR. The amount by which the market FX purchases could be reduced can vary from US$44 bn (entire value of SBER's 50% stake) to US$20 bn (the portion of CBR's proceeds that will be returned to the budget), while the timeframe of said reduction, according to the CBR press release, can vary from 3 to 7 years.

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The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.  more

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