Russian Ruble Recovers Post-CBR Meeting on Rosier Outlook

Russian ruble is trading below 80 against USD and close to 87 against EUR – for the first time since April 4, posting around 2.5% daily increase after CBR’s scheduled meeting and Chairwoman Elvira Nabiullina’s comments.

The Central Bank of Russia said that the key rate will remain at 7.5% as expected. At the end of February last year, the Central Bank, due to unfavorable external conditions and plummeting currency, was forced to increase its key rate twofold from 9.5% to 29% per annum. Subsequently, the Central Bank began gradually reducing its key rate, landing it at the current 7.5% as inflation in Russia formally decreased to 3.5% in April, the lowest level since the summer of 2020. The inflation in Russia will be bottoming out probably in the summer this year, and then CBR expects “normalization” of this indicator.

The country’s inflationary expectations are also declining, and have returned to the 2017-2020 low-price pressures. However, corporate price expectations are remaining high, reflecting a recovery of imports and the ruble’s weakening during this Spring months. The country’s fiscal spending, including deficit spending, has also remained up so far, with commodity markets remaining at two-year highs. As a result, a gap between revenues and expenditures has been widening and the balance of state deficit is increasing.

Meanwhile, unemployment is easing and is now it is formally at a historic low of 3.5%. Nabiullina cited, that “Western financial institutions note that the Russian economy has proven to be much more resilient to sanctions than previously thought”. In particular, she favored a recent report by the International Monetary Fund (IMF). After a significant contraction at the beginning of 2022, the Russian economy managed to recover in the third and fourth quarters. In 2023, the IMF expects Russia's GDP to grow by 0.7%.