Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 02 Jun 2022 by Alexander Kudrin

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As the oil prices remain high (be it Brent or Urals which differ from each other by around $35/bbl) while Russia’s imports have seemingly collapsed on the back of western restrictive sanctions and shrinking domestic demand, the ruble strengthened and fluctuated around R/$60, which is a too strong level. The CBR decided to ease some of the capital controls, but the ruble still remains too strong. So far, the CBR didn’t provide any hints on further easing - some change may come in September, as was initially announced. Therefore, at the moment it is hard to find any arguments for the ruble to get significantly weaker in the coming weeks. Banks’ net liquidity position with the CBR is improving as demand for FX shrinks, while budgetary spending gets generous. CDS determination committee agreed that a case of default had happened, as Minfin delayed payment on coupon and principal for Russia 22 and Russia 42 by almost 30 days. According to their opinion, the borrower had to compensate for accrued interest for this period. The aggregate amount of the claim is $1.9 mln. Minfin said it is ready to redeem this indebtedness in an individual manner, but in our view, CDS will be triggered in any case. Media estimate the potential amount of contracts at $3.2 bln. OFAC decided not to extend the license, which expired on May 25, while Russian authorities said they will be ready to offer an alternative scheme of the payments on Sovereigns at the end of June when the next interest redemption is scheduled. Given all the circumstances, we see a high likelihood, that all Sovereigns and the bulk of the Corporate Eurobonds will be transferred in some way to the local settlement system. In tw...