Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 23 May 2024 by Evgeny Gavrilenkov

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The situation in the FX market remained relatively stable. A steady inflow of FX earnings contributed to the ruble strengthening (close to R/$90) amid moderate trading activity. Most likely, in the near future, the ruble will fluctuate in a narrow range of R/$90-92. Its potential for appreciation is limited, given the persistently high inflation in the country. Assuming other factors are equal, the Russian currency may return to a weakening mode in the case of additional sanctions/restrictions on foreign trade and the financial sector. Yields continued to grow in the OFZ market. The recent relatively hawkish rhetoric of the CBR representatives, i.e., a couple of weeks before the next CBR’s Board of Directors, encouraged investors to price in the possibility of some key rate hike. As a result, the demand for long-term ruble-denominated securities remained suppressed, which has shifted the entire yield curve above the level of 14% per annum. In the seven days ending on May 20, weekly inflation reached 0.11% w-o-w. The MDT and YTD tallies climbed to 0.38% and 2.85%, i.e., higher than in May 2023 when the m-o-m inflation was 0.31%. In April, m-o-m inflation reached 0.5%, and the y-o-y inflation moved to 7.84%. In May, inflation y-o-y will jump again – not least on the back of the budgetary stimulus. Hence, the CBR's concerns are understandable.