Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 05 Dec 2024 by Evgeny Gavrilenkov

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The FX market volatility soared in the past two weeks. It was high enough earlier in November, hovering between 5% and 10%. However, at the beginning of December, it jumped to 20%. Sanctions against 52 Russian banks, introduced at the end of last month, brought some complications to the traditional settlement schemes for imports and exports. The latter resulted in a deficit of hard currency on the market and pushed the ruble lower. Russian currency moved from R/$97.8 as of Nov 11 to about R/$113-114 at the very end of the month. On the back of these events, the CBR decided to stop “mirroring” the previous operations of the National Wealth Fund, which assumed the purchasing of the CNY on the open market. This step helped to stabilize the exchange rate near R/$107-108, but still, there is no guarantee that local corporations will find quick ways for the cash settlement for export/import operations. Sooner or later, these problems will be resolved, but volatility is likely to remain elevated in the coming weeks, while the exchange rate is unlikely to move below R/$100. Moreover, it doesn’t need to go there, as for the time being, Russia’s inflation seems to be out of control. The bond market exhibited two key events during the last two weeks. Firstly, the CBR restored REPO auctions for 1 month, where OFZs usually played the role of the collateral. However, the demand was limited during the first two placements, and the aggregate amount of provided loans was only R51 bln. Secondly, the Finance Ministry announced the issuance of new OFZs linked to RUONIA, which assumes a compound interest rate. A new calculation method will add approximately 140 bps to the rate versus the s...