The start of 2Q14 brought relief to RUB and local markets as geopolitical tensions cooled while the intensity of the savings dollarisation normalised. As regards macro developments, however, rather mixed news flow prevailed over the last month.
On the statistical front, domestic demand pulled back as consumption slowed after a front-loaded spending spree in 1Q14, while corporates continued to slash capex. This contrasted with a solid pick-up in IP on a mix of temporary factors and RUB-restrictions-driven import substitution.
On the macro policy front, the Ministry of Finance managed to fend off political claims to relax the budget rule, while the spike in pork prices and ambiguous communication blur the short-term outlook on the rates policy.
Developments on the broader policy agenda also look somewhat mixed. As regards foreign policy, the USD 400bn gas supply deal marked a historical breakthrough in Sino-Russia relations. At the same time, the domestic policy agenda seems to be shifting back towards reinvigorating the state-led growth model.
Month ahead: The statistical backdrop is likely to remain stagflationary as domestic demand is to keep drifting downwards while food inflation is yet to stabilise. The CBR’s reaction to this is likely to be in the spotlight with possibilities ranging from on-hold to another hike. Aside from the CBR, news flow on the policy front is set to be dominated by discussions on potential quasi-fiscal commitments (NWF) on new investment projects to spur growth.