Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 09 Feb 2022 by Alexander Kudrin

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In early February, the ruble moved to below R/$ 75, having traveled to over R/$80 at the end of January. As Russia and some leaders of NATO member countries are now engaged in discussions, Russia’s invasion of Ukraine, “scheduled” by a group of enthusiasts in the Western countries, looks now less “imminent” than previously. The ruble, however, is likely to remain volatile, and its further appreciation is not guaranteed, despite the very high oil price. Permanent muttering about sanctions will keep the ruble relatively weak and volatile. Some sanctions cannot be ruled out - irrespective of how the situation on the Russia-Ukraine border evolves. Domestically, the banking sector liquidity increased in recent weeks as the tax payment season ended. On top of that, high oil prices boosted federal budget revenues and prompted Minfin to purchase an increased amount of FX and inject ruble liquidity into the system.Some easing of geopolitical tensions created an opportunity for the recovery of the financial markets. Stock markets recently rose by almost 10%, having enjoyed additional support from a steady rise in oil prices. Simultaneously, the sovereign risk-premium measured via CDS dropped below 200 bps. It is still about 70 bps wider than at the beginning of the year. OFZs yields went down as well, and Minfin was able to arrange two primary placements as some demand appeared from the domestic and external sides. However, ruble bonds are more sensitive to the upcoming decision of CBR on interest rates.According to Rosstat, in seven days ending on February 4, inflation reached 0.29%. The statistical service split it between the two months and reported that inflation in January ...