Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 10 Oct 2024 by Evgeny Gavrilenkov

---

The ruble weakened against the dollar in the past couple of weeks, and since Sep 25, it has lost about 3.5% of its value. On the one hand, the settlement for imports has more or less normalized in September, which fuelled demand for FX. On the other hand, the dollar strengthened globally, and some rise in the oil price (not leased due to increased geopolitical tensions in the Middle East) did not offset the aforementioned factors. Overall, the ruble's recent weakening looks healthy and natural as it will help the government collect more taxes linked to the oil price and the exchange rate. Therefore, the government's recent decision to increase expenditures this year and raise the federal budget deficit ceiling to 1.7% of GDP in 2024 should look less scary for investors as the actual deficit will be visibly lower. Nonetheless, as the ruble moved too fast, it might provoke some reaction from the authorities (unnecessary, though, in our view – largely because the dollar appreciated globally). The requirement for obligatory sale of FX export revenues was cut from 80 to 40% after the implementation of sanctions against the Moscow exchange. Hence, we cannot rule out that the government might raise this requirement if the ruble keeps weakening too fast. The situation on the debt market remains complicated. The Finance Ministry is trying to fulfill the borrowing program, while investors are afraid of further tightening of the monetary policy. Hence they don’t favor long-term bonds. Moreover, investors look for additional premiums of floating rate papers. In this environment, the issuer has to increase it step-by-step but still is able to raise only a moderate amount of funding...