The greater RUB REER appreciation in April (vs. that seen in March) was partly a result of the average nominal rouble weakening against EUR (RUB was down 2.0% MoM against EUR, according to official average rates), despite the CPI spiking to 7.2% YoY (from 7.0% YoY in March). Since January 2008, RUB REER has gained 16.1%.
Over the last four years, April has been weaker in terms of RUB REER. And as we are approaching the summer months there is a growing likelihood of more pressure on RUB from unfavourable seasonality in the BoP. Hence, in the coming months we suggest that internal factors will gradually put a drag Russia’s national currency and RUBBASKET might slide to 36-37.
To recap, during the late April Sochi meeting headed by President Vladimir Putin, Minster for the Economy Andrey Belousov named RUB REER appreciation over recent years as one of the key reasons for slow economic growth. However, CBR Chairman Sergey Ignatiev disagreed, mentioning that REER had gained 4-5% YoY in the last decade, including the pre-crisis years when Russia’s GDP added 7-8% YoY in real terms.
In the medium and long term, we see the terms of trade being stable to worsening (implying that Russia is unlikely to receive more imports for a unit of its exported goods or services). Therefore, we anticipate the pace of RUB appreciation slowing to 1.0-1.5% YoY. That will depend heavily on what level of productivity growth Russia can achieve.