Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 01 Aug 2024 by Evgeny Gavrilenkov
On July 26, the CBR decided to hike the key rate by 200 bps (to 18%), which was the upper boundary of what the market expected. The statement bythe regulator’s BoD was moderately hawkish and confirmed that further monetary policy tightening is likely - if inflation continues to accelerate. The market reaction to this event was mixed. Equities went slightly down, while bond prices bounced back. A couple of days before the BoD meeting the yield for 10-year synthetic OFZ already approached 16%. On July 29 it moved to 16.11% and then declined to 15.68% on July 31. The market will be closely looking at inflation trends in the coming weeks/months to understand when the regulator may start the key rate cut cycle. Currently, the bulk of investors expect it in 2Q25 at the earliest. The ruble remained unchanged as its movements depended more on the situation with FX settlements and foreign trade rather than monetary conditions. Interestingly, interest rates on the money market remained well below the key rate (17.3% for RUONIA vs 18% key rate) despite some liquidity shortage. This phenomenon can be explained by banks’ active borrowing from the CBR at “old rates” during last week. We suppose that this effect will evaporate in a few days and RUONIA will get closer to the key rate. Meanwhile, money market funds remain the most attractive opportunity on the domestic market. These funds saw a massive inflow from both retail and institutional investors. If consumer and corporate lending decelerates amid the elevated policy rates we cannot rule out that commercial banks may start cutting deposit rates at some point - ahead of expectations of some softening of the monetary policy. In th...

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