Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 12 Oct 2023 by Evgeny Gavrilenkov

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Despite all the efforts of monetary authorities, the exchange rate remains volatile. Until recently, the ruble was trading around $/R100 with significant intraday fluctuations. The ruble remained at this level despite the recent widening of the current account surplus. According to CBR statistics, many exporters keep on offshore accounts, therefore reducing FX liquidity on the domestic market. However, as the president signed a decree forcing some categories of exporters to bring more export earnings to Russia, the ruble bounced back to about $/R97. This return didn’t look groundbreaking. Hence, the market will remain sensitive to various negative factors. In such an environment, one can expect volatility to remain elevated amid military escalation in the Middle East. The bond market is drifting lower as investors expect a prolonged period of higher interest rates. The hawkish rhetoric of the CBR, as well as high inflation prints, support this mood. Apart from that, investors are cautious regarding an ambitious borrowing plan for 2024, which assumes the placement of R1 trln OFZs in gross terms per quarter. Keeping in mind that the Government was able to issue only R2.3 trln in 9M23, the problem of potential oversupply of government bonds can only sharpen in 2024. We expect the yield curve to flatten further in the coming months as demand remains muted. In the seven days ending on October 7, weekly inflation was 0.24% w-o-w, which brought the MTD and YTD inflation to 0.30% and 4.91%. Prices grow almost all across the board - due to the overheated consumer lending market and weakened ruble. The effect of CBR’s rate hikes has yet to come. Moreover, one cannot rule out tha...