Reports
22 July 2019

Russia mid-year review: More positive on bonds and rouble, still cautious on growth

The first half of 2019 was very successful for the Russian financial market, with the rouble appreciating 10% against the US dollar, benchmark yields falling by almost 130 basis points and inflation undershooting expectations. But our key concern remains the slow pace of economic growth  

Executive summary

Following a successful first half for Russia's financial markets, we've recently improved our forecast of USD/RUB to 64.0, CPI to 4.0% and the key rate to 7.00%.

Yet most of the credit goes not to Russia itself, but to the rest of the world, which has become more optimistic on the global rates trajectory, more concerned about the oil supply, and more confident in the future harvest.

Given the volatile nature of external markets, we maintain our cautious longer-term view on the Russian market, constrained by local challenges.

Our key concern surrounds the slow pace of economic growth, which is increasingly dependent on big-ticket state-funded projects, while private sector corporates and households prefer to accumulate international assets to local investments, making RUB increasingly dependent on volatile portfolio inflows.

As global investors value Russia’s low macro risk profile, the pivotal country-specific determinant for the flows would be whether the slow growth rate will be addressed with structural policies or with monetary/fiscal tools.

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