Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 29 Feb 2024 by Evgeny Gavrilenkov

---

A couple of days ago the CBR published a note with comments to its latest version of the medium-term macroeconomic forecast, and it now appears that the regulator expects that banking sectors' net liquidity will turn into deficit in 2H24 (while in recent months it was in surplus of a decent size and now stands at R1.8 trln). At some point, the deficit may sink to as low as R (-1.4) - (-0.6) trln. The main reason for the forthcoming such a change will be growing FX sales by CBR on the market as stipulated by the fiscal rule. If this forecast materializes, then short-term interest rates on the money market (like RUONIA) will consistently stay above the key rate. However, the situation may change at year-end as budgetary expenditures may be amended. In any case the potential deficit of liquidity is likely to make the yield curve steeper. In recent weeks the market participants were absorbing rumors and then digesting news of the recent package of sanctions, which was pre-announced at the beginning of the year. Many market participants turned increasingly cautious as new sanctions could affect the settlement system on the FX market. Therefore, some investors tried to prepare themselves for the most negative scenario, which added volatility to the ruble. However, the worst-case scenario didn't materialize and the pressure on the ruble softened and the Russian currency appreciated to R/$91.25. Nevertheless, from a fundamental point of view, the currency has some room for weakening in the coming months. In the past seven days inflation w-o-w remained relatively moderate (0.13%). Inflation MTD and YTD reached 0.56% and 1.42%. In February, m-o-m inflation could be at about 0.6%...