Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 22 May 2025 by Evgeny Gavrilenkov

---

The ruble kept appreciating and broke the USD/RUB80 mark. The last time this level appeared was in the spring of 2023. According to the CBR, household demand on FX shrank by over 50% y-o-y in 4M25. The demand for FX migrated to the primary market of quasi-FX bonds, actively placed in recent months. These papers are nominated in hard currency but settled in rubles and offer a reasonable carry of 7-8% to investors (depending on the issuer and the bond duration). In some sense, these instruments are a kind of FX derivatives as they shift the demand on FX from the current momentum to future periods. They also look like a substitution for FX deposits in commercial banks. The OFZ demand remains strong. In the past two weeks, Minfin placed bonds worth almost R250 bln. The bulk of demand comes from the banking sector as banks experience fast liabilities (deposits) growth, while assets (loans) stagnate amid a high key rate. As a result, banks have to look for alternatives, and OFZs offer an opportunity to boost assets. On top of that, as investors anticipate the key rate cut soon, they are keen to build a position at the long end of the curve. In the past seven days ending on May 19, inflation w-o-w remained moderate as it reached 0.07% w-o-w. Inflation MTD and YTD climbed to 0.15% and 3.27%. The next CBR’s BoD meeting is due in about two weeks, but it may be too early to count on the regulator’s rate cut that soon. However, its rhetoric may soften.