March Ruble/FX Flows

CBR, exporters to support rubleWith the Ukraine crisis heating up over the last few days and following Russia's decision to launch a military operation in Ukraine, the ruble slid more than 10% to 90 against the dollar yesterday. To ensure financial stability, the CBR announced an intervention in the FX market. The amount for Thursday will be known only on Monday, but we think it could have amounted to several billion dollars, as turnover in the spot FX market on the Moscow Exchange was very high at about $13 bln). The bank also increased provision of ruble and FX liquidity.It also expanded its Lombard List, held a short-term fine-tuning repo auction (today it increased the limit to R3 trln) and raised the limit for offered FX liquidity (from $3 bln to $5 bln for currency swaps in USD/RUB); meanwhile, an FX swap in EUR/RUB was introduced with a limit of EUR2 bln, and the total FX repo limit was hiked to $50 bln from $15 bln, though no such operations were conducted).These measures were enough to halt the ruble's slide and helped it to stabilize near 85. In addition, the US sanctions imposed yesterday turned out to be less severe than some investors had feared, as they did not include an embargo on Russian energy exports or Russia's being cut off from SWIFT. Last but not least, it seems that exporters have significantly ramped up FX sales. We believe exporter FX sales could be one of the most powerful factors of support for the ruble in March. We estimate that this month exporters owe $25 bln in taxes (the amount is reduced by the payment from government to O&G companies under damping mechanism), which is to be one of the largest payments on record. That's because of very high MET receipts amid very high oil and gas prices, as well as very significant profit tax (for 4Q21 and residuals for the whole of 2021) and EPT (for 4Q21) payments.In addition, in March we expect the CBR to keep providing ample FX and ruble liquidity and to conduct FX interventions when necessary. Taking into account Russia's record-high foreign reserves ($643 bln) and rather moderate external corporate debt ($380 bln), the CBR has the ability to significantly support the ruble, which we expect to stabilize around 85.