We consider the result of CBR rebuilding its international reserves to act positively on ruble, additionally rate cuts, decline in inflation and its expectations.
Mounting FX reserves: CBR announced that it will resume accumulating FX reserves on a daily basis in increments of USD100- 200 mn.
However, at this accumulation pace and current reserves at USD360.5bn, it will take CBR two years to reach a level above USD500bn in reserves. Since resuming its build-up of reserves, the ruble has been depreciating against the US dollar.
CBR's monetary easing: In addition to building up reserves, we expect CBR to continue cutting its key rate in the short-term on the back of a contraction in economic activity.
GDP consensus: Market consensus and IMF are forecasting real GDP YoY to decline by -4% and -2.4% in 2015, respectively. Q1 real GDP YoY already showed signs of contraction at -1.9% (against -2.6% for market consensus).
Industrial Production: Recent IP came in at -4.5% on YoY basis. A dip in consumer demand is likely to follow and further exert downward pressure on growth.
Inflation: Recent headline inflation came in at 16.4% YoY. Market consensus is 15.9% YoY for May. Weekly CPI has remained at 0.1% for the past 5 consecutive readings which is a decline from 0.9% in February.
Any rate cut decision will absolutely depend on the level of exchange rate and the inflation trajectory.
Well, we expect USD/RUB to remain in range of 54.10 to 56 by end of Q2 and to then gradually appreciate to 52 by year-end. We estimate current fair value for USD/RUB to remain at 54 levels.
