Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 25 Apr 2024 by Evgeny Gavrilenkov

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In the past couple of weeks, the USD/RUB fluctuated in a narrow range, influenced by various factors. On one hand, the current account looked wide enough in 1Q24. On the other hand, the exporters face problems with repatriating export earnings to Russia. In this situation, the authorities decided to extend the obligatory FX sales of export revenues until the year-end (it was supposed to expire by the end of this month). In our view, it will help to maintain the status quo for a while, but in the longer term, the ruble has some room for depreciation. Some portion of FX demand from population and financial investors may be covered by the issuance of domestic bonds linked to the exchange rate. We would not be surprised if, in the coming months, some big corporations will offer such paper to domestic investors. The active borrowing of the Finance Ministry in March and the beginning of April pushed yields to historical highs. In mid-April, 10Y on-the-run paper yields reached nearly 14% and, after some downward correction, stabilized in the 13.55-13.75% range. The next OFZ placement will not take place for two weeks due to the holiday break in early May. The market is focused on the upcoming CBR meeting, which may send a positive message regarding a potential rate cut. At the same time, recent data on consumer and corporate lending is causing some doubt that the regulator is ready for this because borrowing has accelerated again. Therefore, the most likely wording would be to stay on hold for a longer time frame. Meanwhile, the CBR will publish its updated macroeconomic forecast this Friday, which may bring more clarity as to the future steps of the regulator. In the seven d...