Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 08 Sep 2022 by Alexander Kudrin
The announced decision of G7 group to introduce price cap for Russian oil as well as further initiative from EU to do the same in relation to Russian pipeline gas had no impact on FX market yet. The oil price that fell in the past two weeks also didn't affect the ruble so far. The Russian currency remains relatively stable and in the past two weeks has fluctuated in a narrow range (RUB/USD60-61). Meanwhile, trading activity continues to shift in favor of another currency pair - RUB/CNY. According to the CBR, more local exporters are switching to Chinese currency in their international settlements. As a result, its share in the structure of export revenues reached 26%. We don't expect significant moves in the exchange rate in the coming weeks, but in the longer run the ruble has the potential to weaken to more fundamentally justifiable levels. The Finance ministry announced re-start of primary placements in September. There is no need to raise significant amounts of funds from the open market as fiscal rule was suspended this year. The issuer wants to test the market and get a clearer understanding concerning the capacity of the local market in the new realities as international investors left the Russian markets. In anticipation of this event OFZ yield shifted up by 5-7 bps. We don't rule out that the placement premium may reach 10-15 bps, which may fuel a further upward move of the curve on the secondary market. Besides that, investors are expecting rate decision from CBR next week, and 50 bps cut is almost priced in, but if regulator delivers something more, then it could be positive surprise for the market. Deflation in Russia was reported for another week as in the...

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