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Opinion
July 26, 2019 www.intellinews.com I Page 21
is a more public debate, i.e. fighting, between several of the most senior people in government over what should be done to fix the problem and revise the economy. That is also new and, to a large extent, encouraging that the debate is so public and not suppressed by the administration. One of the positives is that the feared higher peak in inflation has not happened and both the headline and food inflation rates are now edging lower. That allowed the CBR to cut its key rate for the first time in 15 months. It is reasonable to assume at least one more rate cut this year and several in 2020.
The ruble has appreciated by more than 10% against the dollar and by more than 11% against the euro since the start of the year. That “drift” is more because of the continuing strength in the oil price and the fact that sanction threats have not (yet) been actioned. That move is a double-edged sword in that while the strong ruble is good for Russians taking vacations outside the country and helps inward investment, it also goes against the government’s preference for a weaker-for-longer ruble in order to boost exports and to diversify the economy. The federal budget expects a year-end rate of RUB65.1 versus the dollar, which reflects
the government’s preference. It also realistically reflects the expected sanctions move and weaker oil in the autumn.
After almost six years of crisis management and sluggish economic performance it is tempting to assume nothing will ever change. But, beyond the headlines, a great deal has already changed. That could lead to the start of another phase in strong economic performance or it could lead
to greater frustration and less social-political stability in the years ahead. Portfolio investors are at least betting on the former with the dollar- denominated RTS Index up over 30% year to date, the best performing major market in the world
in 2019, and the yield on Russia’s benchmark 30 year Eurobond has fallen from 4.25% to 3% since the start of the year. Investors of course do not always get it right. But those that want a trouble- free transition in the Kremlin in 2024 definitely need to.
Chris Weafer is a founding partner of Macro- Advisory, which helps investors cut though the noise and focus on underlying trends, real political risks, and opportunities in Russia/CIS, the Eurasia Union, and Mongolia. Follow him on @ChrisWeafer.