Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 26 Sep 2024 by Evgeny Gavrilenkov

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The CBR decided to hike the key rate to 19% (from 18%), which became the most important event for Russian markets in the past couple of weeks. In addition, the regulator kept a hawkish tone in the minutes of the BoD meeting. According to the document, the members of the BoD “calibrated” the statement from Sep 13 hinting that another rate hike is likely. We suppose that yields on the bond market will continue to climb on the back of such news. On top of that, demand on the equity market will likely stay muted. Another important event was the publication of several elements of the draft of the budget for 2025-27. It assumes the deficit to be 0.5% of GDP in 2025, which is lower than expected (about 1% of GDP according to earlier projections). At the same time, some foreign media mentioned that the expected 2024 deficit was raised from 1% to 1.7% GDP. The final draft 2025 budget is yet to be submitted to the Duma but the Russian sources (quoting government officials) effectively mentioned that the budget deficit in 2024 will appear lower than initially targeted (the official amended target was set at somewhat below R2.1 trln, i.e., slightly above 1.0% of expected GDP). We tend to believe that the 2024 budget deficit will be close to this target – unless a sudden amendment of 2024 expenditures (which looks not likely). All in all we see no problems with financing this deficit – even though in 9M24, Minfin was able to execute a borrowing program by only 48%. Next year, the Government plans to increase OFZ gross issuance by 18% (28% in net terms), which looks quite ambitious. All in all, we don’t see any reason for the yield curve to move down without a softening of monetary ...