Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 19 May 2022 by Alexander Kudrin

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So far, the EU has failed to introduce the sixth package of sanctions, which was supposed to include some kind or embargo on Russian oil and oil-refined products. At the same time, the Western countries continue to discuss some other restrictions on energy imports from Russia (such as imposing special import duties), and at some point, this measure may be implemented in some form. Oil prices remain elevated, and even a discounted Urals blend (by around $35/bbl against Brent in recent days) secures strong inflow of FX to Russia. Strong current account surplus (which reached $95.8 bln in 4M22) helped the ruble to appreciate and allows CBR to gradually soften capital control measures. Still, the R/$60-65 range looks a too strong level for the Russian currency.The Russian equity market bounced back to levels seen before the start of the "special military operation". This rise in market indices can be explained by both the stable exchange rate and some inflow of money from Russian individuals who have chosen to deplete their bank accounts in favor of the stock market. The OFAC license, which allowed Minfin to service its USD debt, will expire next week (on May 25), and according to the media, most likely it won't be extended. If so, Russia will not be able to pay coupons on Sovereigns (even though it is willing to do so), which will effectively mean a default amid a strong current account surplus, strong budgetary surplus, and strong FX inflows.On May 13, Russia's inflation MTD reached 0.15% only, as in the seven days ending on May 13, it was only 0.05% w-o-w. To some extent it could have been an effect form the lasting national holidays, but overall, inflation decelerates ...