BofA-ML forecasts stronger Russian rouble

Analysts at Bank of America-Merrill Lynch forecast a stronger rouble for 2019, pointing to upwards revisions to their projections for the Russia Federation's current account surplus and perhaps also a 'hawkish' central bank.

In a research note sent to clients on Monday, BofA-ML revised its projection for Russia's current account surplus in 2019 from $70.0bn to $101.4bn, following a bumper reading for the fourth quarter of 2018, which saw the surplus hit an all-time high of $114.9bn, on the back of an improving trade surplus.

Buoying the current account was the positive impact of "strong" oil and a 2.7% year-on-year fall in imports in US dollar terms over the second half of 2018.

"We think that imports will likely remain weak for the large part of 2019 due to an even weaker economic growth. With the expected oil recovery, this should provide further support to the CA surplus at least in 1H19.

"The surplus might start to narrow in 2H19 and into 2020 due to peaking oil and expected acceleration of economic growth."

Hence, and despite the resumption of Central Bank of Russia's purchases of US dollars during the previous week, the investment bank penciled in a stronger rouble for year-end 2019, predicting a value of 62.0 against the Greenback, while adding that it "liked" the country's sovereign bonds.

The current account surplus was seen peaking in the first quarter of 2019.

To take note of, with the psychological level of 70.0 in US dollar/rouble and given that the risk of sanctions was still present, BofA-ML believed that "attention to levels and volatility of the currency will likely be high, and any sign of the purchases impacting levels may cause a re-discussion of amounts [of FX purchases]."

In terms of risks, the CBR's decision to halt purchases at the end of 2018 meant that there was a backlog of 1.8trn roubles in purchases ($27bn).

"[However] since this would impact the RUB, we don't think the CBR will be interested in catching-up with past purchases before at least having monitored the market impact of new purchases."

Having kicked-off in January 2017, authorities' goal was to purchase $500bn, versus $462bn at the time of writing.