Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 09 May 2024 by Evgeny Gavrilenkov

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The ruble appreciated in the past two weeks from USD/RUB 94 to almost USD/RUB 91. We suppose that there were two main reasons for such dynamics. Firstly, efforts of the Russian exporters to repatriate export earnings to Russia appeared relatively successful. The settlement between the Russian companies and their foreign counterparties faced additional difficulties as the Western countries placed more pressure on the banks of some EM countries. As a result, the time needed to repatriate export earnings increased, and the amount of FX concentrated on foreign accounts of the Russian companies grew substantially. In March alone, this volume increased by $15 bln. As we understand, this money is gradually moving to the local FX market as exporters found some alternative solutions. As a result, the supply of FX is likely to remain stable in the coming months. Secondly, the authorities decided to extend the requirements of mandatory sale of FX revenues for exporters for another 12 months (the previous exceeded at the end of April). This decision was also positive for the ruble. The CBR decision to keep the key rate unchanged (at 16%) was widely expected, while a more hawkish signal became a surprise. The market started to price in an extended period of elevated key rate. The latter pushes up OFZ yields. For synthetic 10Y paper, it reached 13.7%. If demand for primary placements remains muted in the next few weeks, one may expect another upward move, close to 14%. In this case, chances that the Finance Ministry may come back to the placement of floating rate bonds will go up. It looks as though inflation stopped decelerating in April – even though Rosstat was not published yet,...