Country Economic Forecasts > Russia

The short-term economic outlook for Russia continues to be dominated by oil price developments. A rebound in oil prices from their 13-year low has strengthened the rouble (RUB), which has gained almost 20% since its record low against the dollar in January. The RUB has also gained from a phase of global risk-on in response to the Feds more cautious approach to rate rises. But we think the recent oil price rally will fade, weakening the RUB to 73.5 to the dollar by the end of 2016.Despite easing inflationary pressures and a strengthening RUB, the Central Bank of Russia (CBR) decided not to cut the key interest rate at its policy meeting in March, citing its concern over the fragility of the oil price rally and still-high inflation expectations. But we think the CBR will have enough room to cut rates by 150bp in H2 2016. This easing should help the economy generate modest growth in 2017 after shrinking by 2.4% this year.Lower oil prices will put Russias 2016 budget under severe strain. Despite large fiscal buffers and ample borrowing capacity, a tighter fiscal stance will still be required to contain a widening budget deficit. This will add to the downward pressures on the economy.