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December stats to reveal first damage assessment from RUB devaluation

 
26.01.2015

The macro agenda this week is busy: Rosstat is to publish its monthly report for December, the CBR and the NBH are to take decisions on rates, while S&P might announce its verdict on Russia's sovereign rating.

The December monthly report from Rosstat is the heavyweight on the data front this week. IP is likely to have remained relatively stable in slightly negative territory, as suggested by flat dynamics in energy consumption and rail cargo handling for December: import substitution, defence (re-armament) and infrastructure spending continue to provide temporary support to the supply side of the economy.

On the demand side, the impact of sharp currency depreciation is likely to have substantially distorted the ordinary behaviour of economic agents once again. Anecdotal evidence suggests that households flocked to 'swap' their rouble savings into real assets (durables and real estate) and hard currency last month. Recent banking statistics reported significant deposit outflows in December (up to RUB 800bn SA, we estimate) and at least part of these outflows ended up in retail outlets, as households hurried to purchase imported goods before imminent price hikes. December, however, is likely to prove the last positive month for the consumer sector, as shrinking disposable income is likely to result in significant cutbacks in discretionary consumer spending into 2015. On the corporate side, companies will probably have cut capex outlays substantially already in December and set aside more funds for a rainy day, as there seems to be evidence of an unusually large uptick in corporate deposits. Capex cutbacks are likely to persist over the next several quarters given extremely tight financial conditions and yet elevated uncertainty.

Against this challenging economic background, the pressure is high on the CBR this Friday. We expect the regulator to keep rates unchanged. Financial stability is likely to remain key for the CBR at the current juncture. From this standpoint there is tentative evidence in the recent data that deposit flows have stabilised since the start of the year alone, with relative moderation in FX volatility. Before starting to reverse the recent extraordinary rate increase, however, the regulator is likely to want to see a more sustained stabilisation. Moreover, the latest weekly inflation prints, admittedly moderating from December, remain elevated, suggesting either i) a larger or ii) a more front-loaded path of the pass-through from RUB weakness. In this light, the CBR is likely to tilt to the cautious side and wait before the run rate of inflation normalises.

Elsewhere, in the CE3 region, the MPC meeting in Hungary is likely to be the main focus this week. The last time Hungary cut rates was in July, and since then the balance of risks has been continuously shifting to the dovish side. In light of the start of QE by the ECB and recent HUF strengthening, we believe that there is a good chance that the NBH will pull the trigger this Tuesday.

Apart from macro agenda, we also remind readers that S&P might conclude its review on Russia and follow with consequent rating action this week.

Vladimir Kolychev
VTB Capital analysts

Tags:
ruble, CBR

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