April Ruble/FX Flows

We consider the ruble to be at a crossroads due to the geopolitical climate, though we expect President Putin's annual address to the Federal Assembly and climate talks involving Russia later this month to bring some clarity.The ruble was trading close to 73 to the dollar in mid-March, supported by elevated oil prices, the CBR's hawkish turn, rising commodity prices and the prospect of the NWF being invested this year. But it has tumbled 5-6% since then to 77-78, its weakest level since November. The move was sparked by US President Joe Biden's criticism of Russian President Vladimir Putin, which reignited sanctions concerns, amid rising tensions in Eastern Ukraine. We estimate that the geopolitical premium in USD/RUB now stands at 16%, the same level as in early November amid the US elections-related uncertainty. We expect geopolitics to remain the key driver for the ruble, as the agenda for April is shaping up to be quite intense. On April 21, Putin will address the Federal Assembly, where he is likely to cover geopolitics, the upcoming parliamentary elections, social spending and NWF investments. Federation Council Speaker Valentina Matvienko has called the speech as an address for a "new era." According to Matvienko, some of Putin's policy proposals will need to be acted upon quickly and will require adjustments to existing legislative proceedings. The Federation Council will therefore convene the next day and hold a plenary session on April 23. On April 22-23, Putin will take part in a world leaders' virtual climate summit, hosted by Biden, which will involve the leaders of 40 countries. Ahead of these two key events, we expect the ruble to trade sideways in a 76-78 range, as long as no new material geopolitical skirmishes occur. We think the ruble is at a crossroads and could either pare the recent losses if the geopolitical tension de-escalates or depreciate further otherwise.Flow-wise, the ruble should find support this month. First, we think internationals have already significantly reduced their exposure to Russian assets, including to OFZs. This means the potential for a further ruble selloff by nonresidents is now more limited, again, as long as no material new triggers appear. Individuals have recently increased FX sales, which is something they have been doing over the past year during period of ruble weakness. We expect them to continue actively selling hard currency, as they purchased quite a lot in November-December (about $5 bln, according to the CBR).We expect corporates to increase FX sales this month given the approach of tax payment deadlines (hefty quarterly profit tax, EPT and MET payments), as they did last month, which will also be supportive for the ruble. We estimate they are due to pay around R0.9 trln, or $12.3 bln, compared with $11.5 bln in March, which will be the highest sum since March 2020. Increased FX sales by corporates will likely outweigh an increase in FX purchases under the budget fiscal rule. These purchases will climb to R186 bln in April from R148 bln in March, or to $110 mln per day from $90 mln.