Page 58 - RusRPTSept20

Thus, with the CBR sharply cutting the key rate, we have already seen two unpleasant macroeconomic consequences: stronger outflow of non-residents from the local market and more negative pressure on the ruble exchange rate, while seriously complicating the implementation of fiscal policy during the crisis. This monetary change also indirectly boosted inflationary pressures precisely in anticipation of a seasonal rise in inflation, which usually starts in October. So far, the weaker ruble has only led to high retail gasoline prices, but, taking into account the lag, we expect that prices for imported goods, including food, will start rising in September-October.
Russia now receives more euros than dollars for its exports to China, in the latest sign President Vladimir Putin is ploughing ahead with his pledge to reduce dependence on the US currency. Just over 50% of the goods China bought from its northern neighbour in the first quarter were priced in euros, according to Bank of Russia data published this month. The share of the currency in payment for exports to the European Union increased to 43% from 38% at the end of last year, the data show.
Seasonal capital outflow weighs on the ruble. Investors are bracing for bad news. In the last week of July the risk of investing in Russian assets rose sharply.
The ruble depreciated for no obvious reason; on the contrary, the weakness in US dollar and stable oil prices should have supported the Russian currency.
The main factor behind the ruble weakness was sales by non-residents, who considered the OFZ story to be mostly priced in following a series of aggressive rate cuts by the CBR.
Moreover, they intensified seasonal purchases of currency after dividend payments and could not help but react to the growing tension in relations between Moscow and the West.
In addition, the risk of a pullback in oil prices is growing: OPEC+ starts to boost oil supplies despite the continued weak demand in the global economy. Uncertainty is further reinforced by the approaching Autumn – a period when many virologists expect new COVID outbreaks.
58 RUSSIA Country Report September 2020 www.intellinews.com