Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 12 Sep 2024 by Evgeny Gavrilenkov

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The situation in the FX market improved. The CBR efforts supported by the market participants helped to restore regular flow between OTC and the exchanges. As a result, the spread between domestic and international USD/CNY rates evaporated. On top of that, the CNY money market in Russia stabilized, and the overnight rate fell from a triple-digit level to 15-20%. The ruble remained volatile, and the decline in oil prices pushed the exchange rate above USD/RUB 90. We see room for further weakening of the national currency in the coming months. In recent weeks, the ruble liquidity has become less abundant, having pushed the RUONIA rate above the key rate level (18%). The main economic event of this week is the CBR’s BoD meeting on September 13 to discuss the potential change of the key rate. Weekly inflation prints are mixed, which adds uncertainty. Some investors believe that the CBR will make a break in the rate hike cycle. The latter fueled demand for long-term OFZs, whose yield decreased by 50-60 bps since the start of September. At the same time, we don’t expect CBR to make its statement more dovish. The uncertainty remains high, especially regarding the 2025 budget – the government will submit the draft to the State Duma by October 1. The 2025 expenditures are essential for the monetary authorities to start shaping the 2025 monetary policy. In anticipation of this announcement, we suppose the CBR will not make any radical change in the tone of its statement. In the seven days ending on September 9 weekly, inflation stayed elevated (0.08% w-o-w). Interestingly, Rosstat reported that the MTD inflation on the same day was 0.8%, which implies some minor deflation in the...