Page 78 - RusRPTFeb21
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The relatively healthy current account surplus, which IMG expect at $30bn for 1H21, should be large enough to withstand the pressure of mandatory FX purchases, sluggish portfolio inflows into OFZ and the persistent capital outflow by the private sector. However, by mid-2021 the support from the current account should wear thin, making the FX market vulnerable to the pressure of other balance of payment items.
Assuming a benign global risk backdrop and no further deterioration of the Russia-specific case, our expectations of $RUBreturning to the 71-72 range in 1H21 are still realistic. Meanwhile, the 2H21 appears weaker from the balance of payments perspective, calling for a 73-75 target range, all else being equal.
Russia’s Minfin resumes FX purchases after 10M break. “Ultraconservative fiscal policy is one of the strongest features of Russia’s economic policy, despite coming at the cost of low growth and a stagnating business environment,” BCS Global Markets said in a note on January 14.
Russia’s Ministry of Finance will resume FX purchases for the National Welfare Fund from January 15, according to the official announcement published on January 13.
“The move was explained by a return of crude oil prices to comfortable levels, which put Russia’s fiscal balance back into black. The volume of these purchases until February 4 will be fairly low at RUB7.1bn a day (c$95mn),” BCS GM said.
Last time the CBR made such purchases for the NWF was on March 6, 2020; then it bought FX for RUB9.4bn ($139mn). From March 10, the trend reversed, as the CBR started to sell FX to support the budget and the RUB. FX sales from the fund peaked on April 22, hitting a daily volume of RUB23bn ($300mn). Currently, daily FX sales are running at RUB2.2-2.3bn (c$30mn), BCS GM reports.
Despite the crisis caused by the pandemic, in 2020, Russia managed to increase its sovereign FX holdings: the country’s international reserves rose from $554bn on 1 January 2020 to $592bn on December 25 while in the same period the volume of NWF – part of gross reserves – jumped from $125bn to $183bn. The liquid part of the NWF increased from $98bn to $117bn.
The FX purchases but the CBR are unlikely to have any effect on the RUB rate. Theoretically, the Minfin’s return to buying FX should lead to higher pressures on the RUB rate.
“However, we believe that such effect will be insignificant primarily because of very small volumes of such purchases (c0.5-0.7% of the daily traded FX volumes on MOEX). The Russian currency’s moves will remain largely framed
78 RUSSIA Country Report February 2021 www.intellinews.com
