Russian macro: the ruble - back to a normal trajectory
After the Russian Central Bank hiked the key rate a few days ago, the ruble bounced back to the low USD/RUB 90s area, which currently seems a sort of comfortable equilibrium zone for the exchange rate. The CBR mentioned accelerating inflation as the main reason for the key rate hike, which seems to be the real reason, as further weakening of the ruble could have caused inflation to soar in the following months as budgetary spending remains generous. In the past months the passthrough effect looked meaningful amid overheated domestic demand and the continuous weakening of the ruble. Overall, it is clear that the CBR’s immediate target was the ruble itself while rising inflation was a secondary target. Meanwhile, there was little noise domestically while the ruble was weakening, and equally, the ruble’s recovery appeared unnoticed by the absolute majority of businesses and population. One could see much more reaction in the Western mainstream media.
This weakening of the ruble appears more positive than negative for the nation’s economy in the current circumstances as the foreign debt is small and shrinking. As the West decided to ringfence Russia technologically, it means that the latter can import next to nothing from the Western countries. In the long term, it will have to increasingly rely on its local brains as far as any technologically advanced products are concerned. Russia’s imports soared in recent months but it was largely due to increased supplies of various consumer “toys”, such as cars, etc. now coming mainly from China, not the EU. The Russian consumers look happy as retail sales of non-food items grew by 13.8% y-o-y in 2Q23 and in the medium-term Russia will continue to increasingly rely on imports from China.
Overall, it looks as though the USD/RUB 90-100 rate is very comfortable for the country’s economy, which gives some room for authorities to consider additional spending. At the same time, a weaker real ruble helps domestic manufacturers and supports economic growth. Even a further depreciation of the ruble won’t be scary. In 2Q23, manufacturing grew by 11.3% y-o-y, which pulled the 1H23 tally to 6.3% y-o-y growth after a mere 1.1% y-o-y growth in 1Q23.
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