Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 11 May 2023 by Evgeny Gavrilenkov

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A number of interesting events affected the FX market in recent weeks. Note that the ruble significantly weakened in April and moved from R/$77 to about R/$82, which was partially explained by increased federal budget expenditures. In April alone, they accounted for over R3.1 trln. In January, they were unusually high, but in the following months, they returned back to normal, while in April, they soared again. In 4M23, the federal budget expenditures accounted for 38.6% of the annual target, while the deficit reached R3.4 trln (117% from the annual target). In April, the deficit slightly exceeded R1 trln. Some portion of the excess liquidity ended up on the FX market, which caused the ruble to weaken. We suppose that budgetary transactions will get back to normal soon. Moreover, it looks as though it already happened in May as the pressure on the ruble eased. During the last two weeks, the ruble liquidity tightened, and the currency appreciated having reached R/$76-77. The equity market remains trendless amid high uncertainty and a lack of positive news. On the bond market, Minfin re-started the placement of floating rate bonds in the first week of May and managed to sell these papers worth R75.5 bln. The main reason for this decision was the significant growth of yield for fixed-rate paper, which for 10-year bonds reached 11%. We suppose that floaters will be the main instrument for raising the capital for Minfin in the coming months. Inflation in the seven days ending on May 2 was 0.19% w-o-w, and Rosstat allocated to May 0.05% out of it. Inflation w-o-w remained unstable in the past several weeks. In the previous seven days, it was 0.1%, and in the seven days endin...