Russian Ruble Outlook (1-3 Month) – More easing

USD/RUB is expected to reach 56 by end of Q2 and to then gradually appreciate to 52 by year-end. Annalysts assume, this will be a result of CBR rebuilding its international reserves, additional rate cuts, and a decline in inflation and its expectations. 

A fair value for USD/RUB is estimated at 55. In mid-May, CBR announced that it will resume accumulating FX reserves on a daily basis in increments of USD100- 200mn. However, at this accumulation pace and current reserves at USD360.5bn, it will take CBR two years to reach a level above USD500bn in reserves. 

"Since resuming its build-up of reserves, the ruble has been depreciating against the US dollar. In addition to building up reserves, CBR is expected to continue cutting its key rate in the short-term on the back of a contraction in economic activity. Market consensus and IMF are forecasting real GDP y/y to decline by -4% and -2.4% in 2015, respectively", says RBC Capital Markets. 

Recent IP y/y came in at -4.5%. Real wages growth y/y has also contracted (Apr. -13.2%). A decline in consumer demand is likely to follow and further exert downward pressure on growth. 1Q real GDP y/y already showed signs of contraction at -1.9% (against -2.6% for market consensus), added RBC Capital Markets. The pace of rate cuts is assumed to be depended on the level of exchange rate and the inflation trajectory. Recent headline inflation came in at 16.4% y/y. Market consensus is 15.9% y/y for May. Weekly CPI has remained at 0.1% for the past 5 consecutive readings, which is a decline from 0.9% in Feb.