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Economy Monthly for July


RUB at a new sustainable level. The first month of the summer was hit by a broad sell-off in EM markets. RUB was not immune and RUBBASKET weakened around RUB 1.5 towards 37.3. However, we believe that further weakness is capped by the rather heavy CBR interventions, while RUB appreciation is also unlikely, as July-August are set to bring seasonal worsening in the CA surplus and capital outflow.

Inflation risks are to the downside. June marked the beginning of long-awaited disinflation. Even higher growth in tariffs this year (vs. 2012) will not damage this trend, we believe, as the harvest is expected to be good. We see YoY CPI at below 6.0% as early as 3Q13 and at 5.4% as of YE.

Budget under pressure. Weaker nominal GDP growth, lower privatisation revenues and higher VAT repayments are to result in a transfer to the Reserve Fund of just near RUB 65bn, limiting MinFin’s FX purchases. At the same time, the deficit is likely to be only 0.5% of GDP.

Putin unveils his growth action plan. Speaking at SPIEF, Putin announced plans to support growth, including a cap on regulated tariffs and more infrastructure spending. We have lowered our inflation forecast for 2014–15 and kept our 2013 GDP forecast unchanged at 2.4% YoY.

Month ahead. We expect an across the board 25bp cut in policy rates at Nabiullina’s debut CBR meeting. June’s economic data will likely show a slight rebound (technical in nature) from May’s depths.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

ruble, CBR, CPI, GDP

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