Capital outflow putting pressure on ruble, forcing forecast revisions

File Photo of Cash, Coins, Line Graph

(Interfax – MOSCOW, September 25, 2013) The growing capital outflow from Russia is putting pressure on the ruble, the Economic Development Ministry said in an economic forecast for 2014-2016 published on Tuesday.

“The increase in private capital outflow in 2013 from $30 billion to $70 billion, according to the forecast, was an important factor in the depreciation of the ruble,” the document states.

The ruble’s average exchange rate against the dollar in 2013 is now expected to be 32 rubles/$1 instead of the 31.4 rubles projected in the forecast drawn up in May.

However, the weakening of the ruble this year has resulted in a new base for the nominal exchange rate in the forecast period, so in 2014-2016 the ruble is now expected to weaken more slowly than before. As a result, the ruble’s nominal exchange rate against the dollar in 2016 is expected to be about the same as anticipated previously (34.90 rubles/$1).

The net private capital outflow from Russia totalled $38.3 billion in the first half of 2013, the Central Bank estimates. The Economic Development Ministry puts the figure at $6 billion-$7 billion for July and even higher for August, pushing it above $50 billion in the first eight months of the year. The Central Bank expects the outflow to be $67 billion for the year.

However, the ministry has improved the capital outflow forecast for 2014-2016. In the base scenario, the outflow is now expected to be $25 billion in 2014 and zero in 2015, compared to $30 billion and $10 billion forecast earlier, and in 2016 the ministry now projects a capital inflow of $20 billion, compared to zero previously.

The ministry attributes this to the anticipated improvement of the business climate in Russia, which will manifest itself in the decline of capital outflow and resumption of its inflow in 2016.

The capital outflow also has another consequence, as indirectly, through the ruble’s exchange rate, it affects inflation.

“The stronger than previously forecast weakening of the ruble’s exchange rate in the middle of 2013 will have an upward influence on inflation. This could emerge with a time lag of three to nine months and have its main impact at the end of 2013-beginning of 2014, which will add 0.3-.05 percentage points to inflation for the period of influence,” the forecast states. This runs counter to the projections of the Central Bank, which expects inflation to continue slowing in 2014.

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