Problems with trade settlements that stunt imports are benefiting ruble - CBR analysts

MOSCOW. May 29 (Interfax) - Problems with settlements on foreign trade transactions due to the risk of secondary sanctions that Russian companies have been reporting in recent months, which are curbing imports, are essentially benefiting the ruble, Central Bank of Russia (CBR) analysts said.

"Judging by the latest data, the foreign trade balance improved in March-April. This was related to both the increase in the value of energy exports and the absence of the seasonal increase in imports. The latter apparently reflects problems with foreign trade settlements rather than a cooling of domestic demand," the CBR's research and forecasting department said in its bulletin on the latest trends.

Usually, an expansion of the foreign trade balance not related to changes in external prices increases net exports and GDP growth, and also facilitates the strengthening of the national currency. But in the current situation the consequences may differ because the dynamic of imports is determined by restrictions on the side of supply, not demand, the analysts said.

"If, as has already happened before, the problem with payments for imports is quickly resolved, imports will recover fast, and probably overshoot to compensate for previously undelivered volumes, since demand for imports has, at the very least, remained unchanged. In this case, the foreign trade balance will narrow [...] If the resolution of the problem with payments for imports is drawn out, the foreign trade balance could remain high for a longer period of time. This will support the ruble," the report said, recalling that similar processes were at play in the second quarter of 2022.

In another section of the bulletin, the CBR analysts said the increase in prices for Russian crude oil since the start of the year is supporting the nominal volume of Russian exports, despite the intensification of sanctions pressure, and "combined with the absence of the seasonal growth of imports due to problems with payments, this led to the stabilization of the ruble's exchange rate and decrease in its volatility in April and strengthening in May."

"The ruble has strengthened somewhat, having received support from exporters' sales of forex earned for high March shipments and weaker demand from imports amid ongoing problems with making cross-border payments," the bulletin said.