Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 28 Mar 2024 by Evgeny Gavrilenkov

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The main event in Russia during the last two weeks was the terrorist attack on the concert hall in the suburbs of Moscow, which led to a massive number of victims. Despite the unprecedented scale of the tragic event, the reaction of financial markets was moderate, as the ruble lost less than 1%, while equities were almost flat. Nevertheless, the long-term economic impact of this event could be more significant and far reaching, such as tighter security measures across the entire country, more pressure on the exchange rate, etc. In the current situation, we expect investors to keep a more conservative approach during the next several weeks, which may support the demand for FX and greater portfolio allocation in favor of money market instruments. OFZs yields continued to climb as Minfin needed to borrow. On the back of the terrorist attack, one can expect more budgetary expenditures allocated for national security. The latter may lead to a greater deficit this year. The yield for 10-year papers almost approached the 13.5% mark. In our view, borrowing via fixed-rate bonds is too expensive at these levels. Therefore, we cannot rule out that Minfin could switch to the issuance of floaters. In the opposite case, the curve will continue to move up as demand for long-term bonds stays moderate. In the seven days ending on March 25, a weekly inflation print was 0.11% w-o-w. The MTD and YTD tallies moved to 0.22% and 1.77%. In recent weeks, disinflation appeared faster than expected. In March, inflation may not exceed 0.3% m-o-m. As inflation stood at 0.37% m-o-m in March 2023, some disinflation in y-o-y terms is likely by the end of this month. If inflation moderates further the...