Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 01 Feb 2024 by Evgeny Gavrilenkov

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The FX market has not been not too active in recent weeks. The government keeps discussing an extension of the mandatory sale of FX revenues for exporters (currently, this regime finishes at the end of April), while the Central bank opposes the idea. From the fundamental point of view, current regulations distort market pricing, and, over time, distortions will become critical. If so, one may expect either a one-off adjustment of the exchange rate at some point or higher ruble volatility during the adjustment. At the same time, many investors believe that current regulations support FX market stability and are not bad in the near term. Given the upcoming presidential elections, we expect the FX mandatory sales to remain in place for the time being, i.e., for another six months. In January, Minfin placed OFZs worth R239 bln and almost reached its monthly target (R267 bln). Interestingly, the government placed relatively short-term papers (about 3Y maturity) and offered a limited amount (R300 bln). This tactic looks unusual because, over the past ten years, the shortest maturity of bonds the government placed on the primary market was 5Y. We suppose that with these tactics, Minfin aims to support the liquidity in the short end of the curve, while the bulk of issuance will still be concentrated in the long end. In the seven days ending on January 29, inflation reached 0.16% w-o-w. As a result, the MTD inflation moved to 0.62%. It looks as though in January as a whole, inflation won’t exceed 0.65% and maybe even below the currently reported number as Rosstat calculates the monthly inflation on a broader basket of consumer goods and services. Compared to estimates based on ...