Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 27 Mar 2025 by Evgeny Gavrilenkov

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After the USD/RUB shortly moved close to the 80 mark, the ruble weakened slightly, and in the past ten days, the USD/RUB rate fluctuated within the 80-85 range. It won’t be surprising to see some more ruble weakening in the weeks ahead as the current level looks too strong from the fundamental point of view. Following the ruble’s trajectory, the equity market keeps consolidating, as investors don’t see any strong reasons to increase exposure, while arguments for profit-taking are not very convincing. In the past two weeks, demand for OFZs decreased, as, on the one hand, according to several indicators, corporate lending started to grow after two months of stagnation, and banks found this business segment more attractive than government bonds primary placements. On the other hand, the CBR softened its rhetoric only moderately, which could have disappointed some market participants. As a result, the 10Y OFZ yields moved above 15% for the first time since the beginning of the month. As excessively strong ruble trims budgetary oil-and-gas revenues, we expect Minfin to continue placing bonds actively. Hence, OFZ yields will likely move further up. In the seven days ending on March 24, inflation w-o-w was 0.12%. The MTD and YTD tallies moved to 0.35% and 2.41%. Inflationary pressure gradually eased following the ruble’s appreciation and moderation of budgetary spending in February. Inflation m-o-m in March may not exceed 0.5%, with prospects of a further deceleration as domestic demand will likely moderate as consumer lending will likely remain subdued (as opposed to somewhat more active corporate lending). If so, the CBR may reconsider its policy and turn less hawkish.