Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 03 Jul 2025 by Evgeny Gavrilenkov

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The FX market remains stable, as the ruble hovers close to R/$78 for some time. It looks as though the ruble demonstrated some immunity to various domestic and external factors. In our view, it may fluctuate around these levels for a bit longer. However, at some point, the excessively strong will boost imports and the trade balance will narrow as a result. The ruble will likely weaken, and we cannot rule out that it may move to the R/$90-95 range by the year-end. The OFZ market continues to rally. Deceleration of inflation accompanied by relatively dovish statements from CBR officials, and investors cannot rule out a 200 bps key rate cut in July. It sparked demand for OFZs, which had helped Minfin to over fulfill the 2Q25 issuance plan. In such an environment, the yield for 10Y papers dropped below 15% for the first time since March. We don’t rule out that the Government will raise the borrowing ceiling for 2025 to avoid depleting the NWF amid a lack of revenues due to a strong ruble, decelerating inflation, and unimpressive economic growth. Hence, yields will likely contract more slowly in this case. In the seven days ending on June 30, Rosstat’s weekly inflation flash estimate remained moderate (0.07% w-o-w). Inflation MTD and YTD climbed to 0.19% and 3.76%. The final June inflation print may differ from the aforementioned 0.19%, albeit not materially, as the w-o-w inflation decelerated fast. In July, inflation can temporarily accelerate due to the indexation of regulated tariffs, but it will be a one-off effect. In August and September, it will likely be low, and one cannot rule out seasonal deflation over some weeks of the harvesting season. All in all, the CBR now...