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Macro week ahead – eyes on RUB and CBR comments


This week, Rosstat releases its full package of economic statistics for the first month of autumn, including industrial production, retail sales, investments, unemployment and wages growth, as well as the regular weekly inflation print. Otherwise, GUS is to present September CPI reports

It is the behaviour of the rouble, rather than the publication of statistical data, that is likely to remain in focus this week. In this regards, there are two critical questions: when will the CBR draw the line and why are households still so tolerant towards persistent devaluation? These questions are obviously interconnected, but we shall try to address them separately.

First, the current conditions on the local FX market very much resemble 1Q14, with exports not selling and the population starting to watch currency more closely. This kind of herd behaviour is usually broken only by decisive action from the regulator. The next meeting is too far away (on 31 October) and the policymakers might conduct another extraordinary meeting, unless the pressure goes away for some reason. The reaction would, we think, be pretty similar to what we saw in March: a mix of more powerful interventions (with the simultaneous announcement of dirty float) to break the trend and rate hikes. In the meantime, last Friday the First Deputy Chairwoman Kseniya Yudaeva remarked that FX repo facility might be launched by the end of October. This facility might be of some support in terms of the deficit of US dollar liquidity. That said, the reaction function of the regulator is obscured by one principal unknown: whether the recent drop in oil is temporary or structural.

Second, as we have said time and again, the biggest risk for the rouble is that ordinary Russians rush to change their money into foreign currencies. It is a great improvement that people are now much more used to greater flexibility in the exchange rate and have not been purchasing hard currency in emergency mode, despite the all-time low USDRUB (according to the preliminary BoP estimate, there was no panic among households by the end of September). Few believe that people who had roubles converted them back in March. Also, increased credit leverage (as compared with 2008 or 1998) means there is less free cash money to be spent. Meanwhile, as was seen in 1H14, Russians prefer to invest in housing rather than in foreign currencies, especially given the patriotic view of the crisis.

On the economic front, manufacturing output might have continued to shrink as the import substitution which is underway is not strong enough to compensate for the abrupt drop in cars output. Overall, we expect negative headline IP growth, despite a favourable calendar effect. As for consumption, while the fundamentals remain sluggish (wages and lending) some relief on the car market (thanks to the renewed cash-for-clunkers programme) is set to underpin retail sales growth this autumn.

The CPI growth in Poland seems to have remained negative for the third month running in September. As the Polish central bank resumed easing last week we suggest that, after a few months of falling consumer prices, inflation is to return to the positive area and, thereby will not threaten long-term economic growth.

Daria Isakova, Vladimir Kolychev
VTB Capital analyst

ruble, CBR

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