Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 28 Sep 2023 by Evgeny Gavrilenkov

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A series of rate hikes by the CBR had helped to stabilize the situation on the FX market, and in the previous couple of weeks, the ruble hovered slightly above R/$96. Nevertheless, the authorities are still discussing some measures that could either increase the supply of foreign currency or limit demand for it. One of the ideas came recently from the Economics ministry. It suggested creating a “membrane” between local and international FX markets, where the ruble is circulating. This approach assumes the existence of dual exchange rates (like in China for onshore and offshore yuan). Such measures will likely create additional hurdles for international trade and, as a result, bring more negative consequences than positive ones. If the latter are possible at all. Another innovation announced last week assumed additional duties for some categories of exporters if the ruble exceeds R/$80. Theoretically, the latter may increase the supply of hard currency on the domestic market and bring up to R50 bn of additional revenues for the budget monthly. The question is if the government could be a more efficient spender than those squeezed financially. From a fundamental point of view, a wider current account surplus expected in the coming months should help stabilize the FX market, and such proposals have some chance of evaporating. Long-term bond yields are rising as investors realize that elevated interest rates will persist for a while. For example, for 10-year paper, it approached 12%, but even at this level, investor interest remained muted. This Friday, Minfin had to cancel the primary placement of the fixed-rate bond with maturity in 2038 due to a lack of demand. Taking i...