RUB likely to depreciate further

Russia's real sector indictors for July were disappointing in Russia, pointing to continued negative growth in Q3. In particular, the declines in investment and real wages deepened while retail trade remained weak. The steep drop in global energy prices appears to be causing an extension of the recession. 

The lower price of oil changes the equilibrium exchange rate through several channels. The decline in Russia's terms of trade and the associated fall in growth erode productivity relative to trading partners. Additionally, the decrease in energy tax collection and other taxes (from the lower economic activity) worsens the fiscal balance. 

"This requires a combination of financing through an accelerated drawdown of fiscal reserves or cuts in government expenditures, which would further harm growth. This will lead to a looser monetary policy stance, causing higher inflation and a weaker currency. Accordingly, we are adjusting our RUB forecast lower, expecting the RUB to weaken further versus the USD to 75 over the upcoming year", says Barclays.