Russian Macro: Consumer Lending Unlikely to Drive Growth in 2023

RUSSIA ECONOMICS - Report 10 Mar 2023 by Evgeny Gavrilenkov and Alexander Kudrin

As Russia’s inflation peaked last year amid a sharp devaluation of the ruble, financial markets were shaken but not yet “stirred”. A combination of administrative measures, such as some form of capital controls combined with the key rate hike, helped the country’s financial markets to survive without any explosive reshaping. Thanks to amended expenditures which were largely financed from the National Wealth Fund, liquidity was sufficient, and banks continued to lend money, albeit at a high cost. After an inflationary spike in March and April 2022, the m-o-m inflation returned to levels seen in the past few years while the y-o-y inflation subsided gradually, but it will come down sharply in March and April 2023. Therefore, the CBR will likely change its hawkish stance (assuming other factors are equal) and consider cutting the key rate to ease the liquidity situation and bring money market rates down.

There are certain risks associated with the budgetary performance due to the potentially higher demand for borrowing by the Ministry of Finance, though the fact that the ruble gradually weakens and this process is set to continue, the revenue collection should improve – both in the case of the oil-and-gas revenues and VAT on, imported goods. Imports will likely continue rising as the economy shows signs of recovery from the last year’s shock. Hence the risk that OFZ yields (as well as other interest rates) will stay too high is moderate.

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