Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 27 Apr 2023 by Alexander Kudrin

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After the rapid depreciation at the beginning of April, the ruble stabilized in the R/$81 to R/$82 range. As some correction of oil prices occurred, we don’t think there are many reasons to expect the ruble to strengthen significantly soon. In addition, in May, Minfin may start purchasing FX on the open market according to the fiscal rule, which will prevent the ruble from appreciating. At the same time, volatility is likely to remain high as geopolitical uncertainty is still high and persistent. In the past two weeks, OFZ yields continued climbing and exceeded 11% for 10Y papers. Even though the demand on the primary market is not high, in April, Minfin placed ruble bonds worth R227 bln versus R267 bln, i.e., according to the plan. In our view, the opportunity for further increases in the cost of financing is limited. Moreover, one cannot take it for granted that an increase in placement yield will generate enough additional demand. In this situation, it will be more reasonable for the Government to re-start issuance of floating-rate papers. Demand for such instruments is traditionally strong. We expect Minfin to do so, as inflation y-o-y will start gradually climbing amid last year’s summer base effects, such as months of deflation. In the seven days ending on April 24, inflation reached 0.10% w-o-w, which brought the MTD and YTD tallies to 0.31% and 1.99%. In April, inflation m-o-m may stay at about 0.4%, i.e., almost the same as in March. If so, inflation y-o-y will go down to 2.3%. Next month, however, it will gradually start picking up as the m-o-m inflation in May 2022 fell to 0.12% - in the aftermath of a spike in the previous months. In the summer of 2022, Ros...