According to the CBR, in 2Q13 the CA surplus declined 57% YoY to USD 6.9bn. The trade balance narrowed for the fourth consecutive quarter, decreasing 13% YoY on a contraction in oil and gas exports (-5% YoY to USD 85.6bn), while softer imports was supportive for the trade surplus. Deficits of other CA items (except rent) have been expanding, reducing the CA surplus.
The financial account deficit narrowed 45% YoY. Notably, in 2Q13 the volume of FDI outflow and inflow normalised after the 1Q13 numbers, which were affected by the huge Rosneft/TNK-BP deal. Thus, the net FDI balance (for the corporate sector only) returned to the black.
Outflows in dubious operations edged up 5.2% YoY to USD 8.8bn in 2Q13.
In 2Q13, net private (banks and corporates) capital outflow remained almost flat YoY, at USD 9.1bn.
The CBR’s first estimate of 2Q13 shows that the CA surplus continued to shrink on a narrower trade balance and deficits in services and investment income expanded gradually. The CA and financial account balances are moving in tandem and as we expect a lower CA surplus in the coming quarters, capital outflow might also shrink.
We see CA deterioration as a trend, flagging the growing vulnerability of Russia’s economy to the oil price. The persistent ‘bad’ capital outflow (dubious operations) only adds to our concerns. However, the CBR’s presence on the FX market puts a cap on RUB weakness, while unfavourable BoP seasonality in July-August is a floor for RUB appreciation. Our base case is for RUBBASK to trade mainly within the RUB 36.5-37.5 range in 2H13.
RUB is only likely to appreciate more if there are significant improvements in global EM sentiment and oil prices at USD 120/bbl. A weaker RUB is possible on a deeper sell-off in EM currencies coupled with a shift to more flexible CBR FX policy. The latter is unlikely to happen in the coming months (we expect only RUB 1 widening of the RUBBASK band over the summer).