Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 15 Aug 2024 by Evgeny Gavrilenkov

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The FX market demonstrated high volatility last week. Despite the extension of the OFAC license for MOEX, many international institutions cut relationships with the latter before August 13 (the deadline for the initial license). As a result, the spread between the exchange rate for CNY/USD on the local and international markets increased to 7-9%. Apart from that, the daily volatility of the USD/RUB pair soared to 2-3%. We suppose that such volatility spikes may appear from time to time, given that the liquidity of the domestic FX market decreases significantly. However, we believe that businesses will eventually resolve settlement problems for international trade operations, which should help to stabilize the ruble at economically justifiable levels. The OFZ market investors turned more optimistic after two recent inflation prints, which appeared close to seasonal lows. Some investors believe the CBR has already finished the rate hike cycle and may start the downward move in 1H25. The latter fuels demand for long-term OFZs, and the yield for 10-year papers declined from 16.1% at the end of July to 14.9% in the middle of August. Minfin decided to switch from the placements of the floating-rate instruments to fixed-rate bonds. On Wednesday (August 14), it issued papers worth R45.3 bln. Of course, this amount is far from the desired level (around R130 bln per week is required to fulfill the annual borrowing program). At the same time, the demand for OFZs will likely increase in the coming months as consumer and corporate lending is slowing down, and banks will be looking for more assets to buy. In the seven days ending on August 12, weekly inflation was 0.05%. The MTD inf...