Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 23 Oct 2025 by Evgeny Gavrilenkov
Despite considerable geopolitical turbulence, the FX market remains surprisingly calm, showing only moderate ruble volatility. The money market situation, however, appears mixed. RUONIA is trading well below the key rate (16.4% vs 17%), yet banks’ net liquidity position with the CBR hovers near zero. Additionally, major banks have begun offering higher interest rates on deposits. It seems likely that the banking system is transitioning to a structural liquidity deficit, which could push RUONIA higher in the coming weeks. The key event this week is the CBR's decision on the key rate, with market expectations divided into three groups. Around 50% of the most conservative investors predict the regulator will pause, while others expect a cut of either 50 bps or 100 bps, with odds nearly equal. This has kept the fixed income market volatile. Minfin managed to place a decent amount of OFZs, though yields stayed close to 15%. For the week ending October 20, weekly inflation held relatively steady at 0.22% w-o-w, consistent with the past three weeks. Inflation MTD and YTD rose to 0.63% and 4.95%, respectively. Despite a strong ruble, inflationary pressure remains high. In October of 2024, inflation m-o-m was 0.75%, and current trends suggest this month’s inflation will likely surpass that level, pushing y-o-y inflation higher. This puts the CBR in a tough spot—while the economy needs lower interest rates to grow, inflationary pressure persists. Hence, even considering the emerging ruble liquidity shortage, a 100 bps key rate cut in our opinion appears less likely compared to the other options.

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