Russia 110513 Basic Political Developments
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- CIS Wheat Competition
National Economic TrendsCBR reports April interventions at only $3.7bn http://www.bne.eu/dispatch_text15164 Alfa Bank May 13, 2011 According to information recently released by the CBR, of the $21.5bn nominal CBR reserve increase, only $3.7bn reflects interventions on the exchange rate market in April. At first glance, this implies that capital outflow was as high as $13bn vs. our assumption of a balanced-to-positive capital account, which explains the April liquidity squeeze. However, under this assumption, the reserve revaluation effect in April should be $18bn, which is unrealistically high given that EUR/USD movements justify only a $5bn revaluation. We therefore view the published CBR reserves data as confusing and require further clarification. Many market-watchers have taken the released $3.7bn intervention figure as negative news: given our April current account expectation of $16bn, such a modest purchase of foreign currency would imply a huge $13bn capital outflow. While this scenario would explain the liquidity squeeze we saw in April on the interbank market, the CBR reserves statistics do not look conclusive. The newly released CBR intervention data imply that the currency revaluation effect in April should be as high as $18bn, while movements on the global currency market can only justify a revaluation of $5bn. The latter was the reason why after last weeks' announcement of an April nominal reserve increase of $21.5bn, we estimated the CBR actually purchased $16.5bn, which would mean a $0.5bn capital inflow, i.e. a zero or slightly positive capital account (see our note "Interbank Liquidity: Squeezed by the Tight Budget" issued on May 5). We thus deem the recently released intervention data as confusing and expect clarification to follow from the CBR, but the publication certainly gives rise to more concern with regards to the capital account in May-June, especially given the instability of oil prices.
http://www.bne.eu/dispatch_text15164 VTB Capital May 13, 2011 News: CPI inflation was reported at 0.1% WoW during the week of 4-11 May, with the YTD figure reaching 4.4%. The main drivers were food staples, most notably eggs (down 4% WoW), sugar (down 0.5% WoW) and vegetables (down 0.5% WoW). At the same time, fuel prices increased by around 1% WoW. Our View: Inflation has returned to its trend of running a 0.1% price increase per week, from spiking to 0.2% last week. It seems that the government administrative measures continue to bring results (that said, fuel prices continued to rise, so the government can still do better here). However, we have also witnessed a severe tightening of liquidity as a result of the budget running a sizeable surplus (and thus withdrawing cash from the system). RUB appreciation likely also played a role. However, all these factors are transitory, as the government efforts never hold for long: due to the creativity of objects of control, the RUB appreciation is likely over and the Ministry of Finance will probably seasonally start releasing cash (rather than withdrawing it in the autumn). We therefore believe that the YTD inflation, now at 4.4%, makes our 9% YoY forecast continue to look appropriate. Speaking of policy consequences, the CBR paid remarkably little attention to the running inflation in its latest statement, focusing instead on capital flows, real growth and credit market developments. Thus, we think that this CPI figure, which is right on the trend, is monetary policy-neutral. Alexey Moiseev
Russia, Ukraine and Kazakhstan will increase wheat supplies and boost exports starting July 1, increasing competition for European and U.S. growers, the U.S. Department of Agriculture said. Their wheat exports will be 26 million metric tons, more than double the 12.5 million tons a year earlier, the USDA said Wednesday. Russia's wheat exports will be 10 million tons, up from 4 million last year, from production of 53 million tons, up from 41.51 tons, the USDA said.
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