Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 03 Mar 2023 by Alexander Kudrin

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Russian financial markets remain nervous. As the West imposed a next-in-turn package of sanctions last week and announced an intention to impose a "secondary sanctions" mechanism (i.e., tightening enforcement of the already imposed sanctions) market sentiment was negatively impacted. Markets also remain cautious awaiting a contraction of export revenues, which will negatively affect the budget revenue flow and further weaken the exchange rate. Since the beginning of the year the ruble has already lost 7% against the US dollar. Apart from that, the growing number of various "accidents" (some of them could be considered terrorist attacks) inside Russia adds negativity to market sentiment. Hence, investors prefer to hold defensive positions. The ruble liquidity is still excessive, but started to contract, which pushed RUONIA higher. In recent days it was above the key rate (7.6% vs 7.5%). The OFZ market is more or less stable. The Finance Ministry was less active with OFZ primary placements as borrowing became expensive. Recently Minfin was able to raise only R7.5 bn and cancelled one auction. The latter helped stabilize the yield curve. 10-year papers are traded slightly below 11% and it looks as though the issuer will try not to cross this level. As of February 27, MTD inflation reached 0.44%, which was below expectations as in the seven days ending on February 27, consumer price index fell by 0.02% w-o-w. Inflation in the previous week was at 0.06%, i.e., decelerated sharply since the beginning of the year. One cannot rule out that the already predetermined disinflation y-o-y (by a high base effect in March 2021), will occur faster. If so, and if the m-o-m inflation wi...