Russian macro: exchange rate in a comfort zone to favor growth
Russian imports continued to soar in April – both in absolute and y-o-y terms. They reached $26.3 bln that month, a level not seen since mid-2014 (an increase of 49.4% y-o-y). In 2Q20 imports contracted relatively moderately (by 13.0% y-o-y) compared with the increase seen in April and the expected rise in 2Q21. The negative impact of rising imports on economic growth will be offset by the growth of real exports and by household consumption fueled by a rapid increase in consumer lending. On the production side of GDP, these developments will be reflected in fast growth of trade (wholesale and retail).
The ruble has been depreciating over the past ten years irrespective of a consistently positive trade balance. Note that the current account was also positive during this period (apart from rare exceptions during some months). Despite the widening trade surplus in recent months, the ruble failed to appreciate, so that the current level of the exchange rate looks quite comfortable for Russia, especially for the budget. The oil price has fluctuated within a very wide range since 2012 and its current value over $70/bbl looks quite high. Still, the ruble shows no signs of appreciation despite the strengthening current account.
One should hardly expect any strong movements of the USD/RUB exchange rate unless the oil price moves sharply in one direction or another. The ruble may appreciate if the oil price climbs higher, but it is unlikely to return to the stronger levels (in nominal terms) seen in the past. Russia’s relatively high inflation and unconvincing rate of economic growth are weakening the nominal ruble-to-dollar exchange rate over the long term. That being said, the current USD/RUB 72-74 exchange rate looks a kind of a comfort zone for the ruble – even with the oil price above $70/bbl.
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