Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 25 May 2023 by Evgeny Gavrilenkov

---

After some appreciation at the beginning of May, the ruble returned to the R/$80 area. The uncertainty remains high, and the recent package of sanctions confirmed that pressure on Russia will continue to increase. Many investors believe new restrictions on the financial sector and the “unfriendly” currencies will become even more toxic in the local market. As a result, a significant part of the market switched to trading the CNY/RUB pair, and the Russian market faced a lack of CNY liquidity on some occasions. The reason for the deficit of the Chinese currency stems from increased imports from this country (paid in CNY). As a result, the Russian banks had to offer higher interest rates for deposits in CNY. Given the new limitations and secondary sanctions from Western countries, the demand for CNY can only grow. The situation on the OFZ market stabilized, as Minfin started to place floating rate bonds and simultaneously cut the placement premiums for fixed rate papers. Since the beginning of 2Q23, it issued floaters worth R75.5 bln, while the aggregate amount of borrowing was R410 bln. The yield for 10-year bonds on the secondary market stands slightly below the 11% mark, and we suppose the government is not ready to borrow above this level. The budget is currently above the plan, which means that Minfin needs to meet its issuance plan. Despite the expected growth of the budget revenues above the initial target, the deficit is unlikely to be significantly lower as the necessity of boosting expenditures still exists, and amendments are likely. In the seven days ending on May 22, inflation was 0.04% w-o-w, i.e., the same as a week ago. The MTD tally reached just 0.13%, an...