Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 15 Jul 2022 by Alexander Kudrin

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Despite the ongoing easing of capital controls, USD and EUR remain toxic in the eyes of domestic investors and corporates. As a result, despite decreased oil prices and verbal interventions by the authorities aimed at weakening the Russian currency, the ruble remains strong. The government has elaborated on amendments to the fiscal rule, but still, it's not clear how it will be possible to influence the FX market. The ruble liquidity is more than enough to push interest rates down, below the CBR's key rate. Given that inflation continues to decelerate, further cuts by the regulator look almost imminent. The bond market remains calm. Ruble yields were marginally up, but mainly due to technical reasons. The equity market was shocked by the decision of Gazprom's shareholder meeting not to pay recommended earlier dividends. On top of that, the authorities increased the extraction tax for three months. As a result, all the money, which were initially accumulated for dividend payments will be channeled into the budget. On a Eurobonds side, migration of papers to the domestic financial system continues. The law defining the issuance of mirror-bonds (which will be swapped for existing Eurobonds) was signed recently and the first placement may take place in early Autumn. Russia's y-o-y inflation decelerates rapidly whatever the measure of inflation is chosen as in deflation m-o-m was recorded in June. Deflation is likely in July and August as well – even though in July regulated tariffs are up. In July y-o-y inflation could fall to 15.5% and in August could come down to 14.7-14.8%. Further y-o-y disinflation is likely in September as well. As the y-o-y inflation is a backward m...