Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 06 Jun 2024 by Evgeny Gavrilenkov

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The Russian securities market appeared under pressure in recent weeks. Tighter rhetoric by CBR officials convinced investors that the key rate may be raised as soon as in June. Market started to price in this scenario, which sent the yield for 10-year OFZ above 15%, while the equity market index fell. The Finance Ministry had to cancel two of three recent auctions as demand for Government bonds faded given that investors counted on higher premiums on the primary placement, which the issuer was not ready to offer. The complicated situation with the borrowing forced the authorities to revise the structure of the so-called fiscal rule, for the current year. As a result of these amendments, the government will be able to spend an additional R500 bln from the so-called "extra revenues" (i.e., above the cut-off budgeted price of oil) from energy exports. Technically it is mirrored by the increased expenditures, but we suppose that revenue flow will be higher than budgeted due to a faster GDP growth. As a result, the borrowing program will be cut. The latter may support the yield curve in the coming months. The ruble remained reasonably strong despite the declined oil prices. Additional repatriation of export revenues (that were on hold due to technical difficulties related to money transfers) helped. The flow gradually comes back to normal, while imports are still under pressure due to various settlement problems. As the CBR will reduce FX purchases for the National Wealth fund, it will help to maintain stability of the exchange rate. At the same time many investors think that the ruble is worth weakening below R/$90. Hence, we expect it to trade in R/$90-95 in the near comi...