The CA surplus increased to USD22.3bn in Q2’18 from USD2bn in the same period of 2017, according to preliminary figures published by the Russia’s central bank, CBR on Tuesday. The improvement is entirely on account of a higher merchandise trade surplus due to 31.4% y/y export growth. Higher exports of oil, oil products and natural gas explain about two thirds of export growth, but the remaining exports also rose strongly at 22% y/y. The deficit in the services balance eased slightly compared to a year ago, despite an increase of travel abroad by Russians, which can be linked to inflows related to the World Cup, in our view. The deficit in both primary and secondary income increased marginally.
The financial account saw outflows of USD9.9bn, lower than in the previous two quarters, but worse than the small surplus registered a year ago. The main difference here is USD6.6bn reduction of nonresident investments in government bonds, compared to USD4.1bn accumulation in Q1. This is clearly related to the new US sanctions imposed in April, which led to an outflow of nonresident investments in OFZ bonds and Eurobonds. Net flows of banks and the real sector were rather small, which explains also the drop of net capital outflows to USD0.3bn in Q2 from USD17.8bn in Q1. CBR reserves increased by USD11.3bn during Q2 after an increase by USD19.3bn in Q1. The strong growth reflects forex purchases by the FinMin in the framework of the fiscal rule and return of forex liquidity by banks. The FinMin purchased forex for RUB917bn (USD14.8bn) in Q2, which sterilized about two thirds of the CA surplus.