Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 20 Jun 2024 by Evgeny Gavrilenkov

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The recently announced package of sanctions against several companies (including the National Clearing Center), which provides infrastructure for FX trading at the Moscow Exchange (MOEX), was a negative surprise. Even though the market participants had been considering such a possibility since 2022 and made some efforts to soften its possible effects, the reality was a bit abrupt, and the markets were somehow shaken. MOEX had to stop trading the USD/RUB pair and other unfriendly currencies. Meanwhile, the media reported on problems with settlements of various FX deals. According to our understanding, FX demand from importers dropped as many traditional methods of payments need to be reinvented amid the newly imposed restriction. As a result, the ruble strengthened from R/$90 (as of Jun 11 at MOEX) to about R/$83 (as of Jun 19, OTC trading). We believe that the FX market transformation in Russia into the one with 100% OTC transactions may take up to several months. During this period of time, the ruble may remain excessively volatile. A similar situation emerged in 2022 amid the initial flow of sanctions hitting Russia. Two years ago, the ruble needed about half a year to return to its equilibrium area. During that period, the Russian currency appreciated by about 30% (excluding the short period of the ruble's initial sharp devaluation followed by its immediate comeback). We suppose that this time, the process of market renovation may take up to 1-2 months. The situation on the OFZ market remains complicated, as recent inflation prints once again convinced investors that the CBR plans to hike the key rate in July. The latter pushed yields up, and in the case of syntheti...