Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 25 Apr 2025 by Evgeny Gavrilenkov

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Financial markets were affected by a couple of the most recent important factors in the past few weeks. First of all, investors were looking at macroeconomic statistics in order to get some clarity about the timing of a forthcoming CBR’s rate cut cycle. Recent statistics point to some deceleration in inflation, which looks steady, albeit inflation expectations remain elevated and unchanged. In this situation, we one could only expect some softening of the CBR rhetoric, and  today the regulator announced that the key rate keeps at 21%, but softened the statement. Some softening of the rhetoric looks reasonable, given that economic performance was not great in 1Q25. On top of that, ruble liquidity on the interbank market dried out amid a budget surplus in March. As a result the CBR resumed 1 week of REPO auctions to inject additional liquidity into the system. The amount of funds received by banks on April 15 was equal to R1.77 trln, on Apr 22 it declined to R0.9 trln. All in all, chances for the CBR to make the first cut in summer are quite high.Geopolitics was the second factor that looked important to investors. Apart from the evolving Ukraine conflict (with renewed hopes of somehow finding the way out of the deadlock), the tariff games brought some new puzzles and risks to think about. The Russian equity and FX markets appeared to be most affected by these two factors. Both remained strong despite the negative dynamics of oil prices and a lack of clear progress in negotiations in both cases. We believe that investors are too optimistic, and therefore, chances that at some point markets may get disappointed are quite high. If so, the correction on the FX and the stock...