Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 03 Aug 2023 by Evgeny Gavrilenkov

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In the past two weeks, the ruble has continued to depreciate against major global currencies. On the first days of August, a month which is traditionally associated with greater volatility on Russia's financial markets, it at some point surpassed the R/$94 level, which was last observed in March 2022. The ruble keeps weakening despite a shortage of liquidity on the money market. As a result of this shortage money market rates moved up, and RUONIA moved from 8.04% as of July 21 to 8.47% on Aug 01. From a fundamental point of view, the key driver of the ruble's weakening is a shrinking trade balance surplus as imports are booming on the back of an economic recovery, while export revenues contract. Apart from that, a partial switch to settlement in rubles in international trade has also increased demand for rubles and pushed liquidity indicators down. The CBR decided to hike the key rate at its July BoD meeting by 100 bps, which was above consensus (50-75 bps). The reaction of the OFZ market was rather moderate, the 10Y bond yields grew by 2-3 bps. Despite some acceleration of inflation many investors are sure that the regulator will not be able to keep the rate at a relatively high level for a long period of time. However, in the short-run another rate hike looks possible and thus the further flattening of the OFZ yield curve cannot be ruled out. Inflation in the seven days ending on July 31 was 0.13% w-o-w, which brought the MTD inflation to 0.74%. The final m-o-m inflation print in July may be somewhat different as Rosstat uses a broader consumption basket to calculate monthly inflation than the basket it uses for weekly inflation. It looks as though, amid last year's ...