Page 64 - RusRPTSept19

EUR) (average)
Currency (units per USD) (average)
67.2 58.4 62.7
57.14 59
58.41
56.87
61.783
65.45
66.68 66.08
64.56
The ruble was expectedly volatile in August due the threat of new sanctions, but the stress test passed. New US sanctions against Russian public debt, rising US-China tension and increasing risk aversion fueled demand for the US dollar on the Russian FX market.
Oil prices were also of little help to the ruble: an attempt to rebound after the weakening due to sanctions was basically interrupted by a sharp drop in oil prices.
Also the Ministry of Finance started reducing the volume of Russian ruble- denominated OFZ treasury bills issued which lead to a sharp drop in investment inflows that also prevented the ruble from rising.
As a result, the ruble remained at RUB65/$, closing at RUB65.28/$on Friday evening v RUB64.60/$a week ago. In the medium-term, we believe the ruble will continue to trade at cRUB65/$+/- RUB2 and reach RUB64.70/$by end- 2019.
Continued deceleration of inflation, global central bank easing and stagnating Russian economy open the door for another CBR rate cut this year. However, we do not expect large moves – we still project only one more rate cut (by 25 bp) in 2019, most likely closer to year-end. Despite the positive changes in the inflation trend, there are concerns. Inflationary expectations remain elevated: July slowdown in inflation occurred only due to lower indexation of housing and communal services tariffs versus a year ago;
Annual growth rate of prices of services for the population in July declined from 4.8% in June to 4.4% y/y, but annual price growth in fruits and vegetables and gasoline saw noticeable acceleration.
The next CBR meeting is scheduled for 6 September. By year-end, the CBR key rate may be lowered to 7% say analysts.
64 RUSSIA Country Report September 2019
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