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BoP in 2Q14 - stronger CA and moderating savings dollarisation


Yesterday, the CBR finally published its first estimate for the BoP in 2Q14.

The CA surplus surprised on the upside, surging from USD 1.8bn last year to USD 17.2bn in 2Q14 and marking the strongest second quarter since 2011. Sequentially, the improving trend strengthened substantially, with the CA surplus now crawling to 4.0% of GDP. The improvement comes on the back of:

a 27.0% YoY jump in the trade balance, as softer domestic demand and a weaker currency continued to dampen merchandise imports (-5.0% YoY), while stronger oil prices helped to prop up exports (+5.7% YoY);

stronger invisible parts of the CA, whereby slowing income growth and a weaker RUB restrain outbound tourism, while declining corporate profits and a stabilisation in external debt cap investment income outflows.

Net private sector capital outflows moderated to USD 12.3bn, from USD 62.0bn in 1Q14, but remain relatively large compared with last year (USD 4.6bn).

Net demand for cash FX from households dropped from USD 10.3bn last quarter (or USD 19.5bn, accounting for banks) to just USD 1.8bn in 2Q14. A reduction in banks’ foreign assets (by USD 7.5bn, adjusted for swaps and correspondent accounts with the CBR) after a whopping USD 34.5bn increase in 1Q14, also suggests that deposit base dollarisation moderated visibly.

The sum of dubious operations and errors and omissions dropped to just USD 2.5bn in 2Q14, from USD 6.4bn in 2Q13 and USD 40bn pa over the last several years.

Strengthening internal adjustment and import substitution continued to prop up the CA surplus in 2Q14. Private sector capital outflows (predictably) moderated as the intensity of savings dollarisation cooled while visibility on the underlying capital flight remains blurred. Looking ahead, the CA surplus looks set to come back to NFA-stabilising level, providing natural support for the currency, but any escalation of geopolitical tensions might present risks for RUB in 2H14.
Vladimir Kolychev, Daria Isakova
VTB Capital analyst


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