We forecast a steadily weakening Rouble exchange rate over the next two years, although we may see periodic appreciation when the Oil price rises.

Why should this technical exchange rate weaken? Because it will match the trend of Russia’s commodity trade balance – and we forecast the trade surplus to gradually narrow down towards neutral.

And, why should the trade surplus narrow down? Because in the long-term, it is only the counterpart of a (shut) capital account. Russia’s capital account may be open to EM partners such as China, Iran or India, but transactions in non-convertible currencies do not translate to transactions in hard currencies. In hard currencies, Russia’s capital account is frozen.

As the current account surplus will gradually narrow down, the technical USD/RUB fix will keep rising. This is what our forecasts portray.