Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 20 Jul 2023 by Evgeny Gavrilenkov

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The new attack on the Crimea bridge and the termination of the "grain deal" made investors nervous again, which prevented the ruble from moving below the R/$90 benchmark. At the same time liquidity in the banking sectors is shrinking, and the cost of funding is rising. The latter means that in the case of a more stable market sentiment regularly shaken by political news the ruble may appreciate, albeit moderately. In the opposite case (more waves of political turbulence appear) the pressure on the ruble can only mount. In this case, one cannot rule out some administrative limitations to be imposed by the regulators. On the back of recent depreciation of the ruble and a moderate acceleration of inflation (which reached 0.18% w-o-w in the seven days ending on July 17), the market started to speculate about some radical steps from CBR. As a reminder, the next BoD meeting will take place on July 21, and a 50 bps rate hike is almost priced-in, but some investors suggest that the regulator may hike the key rate even by 75-100 bps as a proactive measure. As a result, demand for OFZs on the primary market declined, while yields on the secondary market went up. We suppose that CBR will keep a more balanced approach and we don't expect more than a 50 bps hike. Amid relatively high weekly inflation the MTD inflation print moved to 0.38% while the YTD inflation reached 3.15 on July 17. Price changes varied across the board and the general view is that prices for domestic services (hotel stay, airline tickets) grew relatively fast. For instance, as of July 17, airline ticket prices grew 7.40% and 33.43% MTD and YTD. Fresh fruit and vegetable prices started to fall, but not across t...