Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 09 Jun 2023 by Evgeny Gavrilenkov

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Some acceleration of inflation during the last week to 0.21% w-o-w caused some nervousness among investors. Given the previous moderately hawkish rhetoric of the CBR, many didn’t rule out that the regulator could have raised the key rate today. We didn’t see the necessity to do that, as overall CPI dynamics look moderate amid rather volatile weekly inflation prints. In this environment, the CBR kept the rate unchanged and tightened rhetoric a bit. The budget was almost balanced in May, which led to a narrower liquidity surplus in the banking system, which supports RUONIA above 7.3%. On the FX market, the ruble depreciated on the back of news regarding military escalation in Ukraine. The exchange rate grew close to R/$83 for the first time since April 2022. From a fundamental point of view, this move might look excessive, and assuming other factors are equal, the ruble may return to the R/$80 benchmark in the coming weeks. The demand for OFZ remained muted as investors were nervous amid the above news flow and the risk of a potential rate hike. At the same time, the equity market demonstrated relatively strong dynamics, but the turnover was not high. As said, inflation in the seven days ending on June 5 was 0.21%, i.e., the same as the MTD inflation on May 21. As, out of the reported last week’s inflation, Rosstat allocated 0.15% to the first five days of June, having left the rest to May, the y-o-y inflation could be about 2.45%. Later today, Rossstat will officially report the monthly inflation print for May. We expect it to be below 0.3% m-o-m, and it is hard to be precise as Rosstat calculates monthly and weekly inflation on different consumption baskets. Overall, i...