The ruble real effective exchange rate weakened 4.3% MoM in June, intensifying from a drop of 1.7% MoM (CBR upgraded May data from -2.0% MoM), bringing the YTD change to a negative value of -0.4% (from +4.0% in January-May). The ruble fell against the dollar, declining 5.9% MoM in real terms in June (3.0% YTD) and 3.5% MoM against EUR (+2.5% YTD).
Technically, given nominal ruble depreciation in June (6.9% MoM against USD and 4.5% MoM in June against EUR, according to official average rates), we believe that accelerated CPI in June to 0.9% MoM and 4.3% YoY (from average 0.5% MoM and 3.8% YoY in 5mo12) prevented heavier weakening of REER last month. We suggest that further acceleration in consumer prices growth (to 7.0% Dec/Dec) in Russia might help REER in 2H12 and balance further RUB weakness. Conceptually, we believe the recent ruble REER depreciation had a more visible impact on external trade dynamics than in the previous month through the impact on consumer confidence and real wages. Shrinking CA (due to lower oil prices and unfavourable seasonality) limits the possibility of any meaningful RUB appreciation in REER terms and still poses significant risks for the ruble later this year. Hence, we expect the ruble to continue to lose its value against the dollar and fall to 24.12 and to 37.50 against the bi-currency basket by the end of the year.