Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 11 Mar 2022 by Alexander Kudrin

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As the oil price moved up, the ruble fell against major currencies amid massively increased demand for FX, while the supply of FX looked insufficient to match the demand. Even though the CBR reported that the current account surplus in 2M22 reached $39.2 bn and the trade surplus widened to $46.2 bn, the panic buying of FX pushed the ruble to historical lows. To keep the ruble money markets afloat, the CBR provides liquidity to banks in greater amounts than before - in recent days around R5.3 trln via short-term repo operations and nearly R1.9 trln against illiquid collateral on a longer-term basis. Hence the so-called structural liquidity balance of the banking sector turned strongly negative. RUONIA, which used to stay below the CBR key rate in the previous year, now moved above it. As imports are set to shrink massively in the coming months (by a factor of two is not impossible) the current account will remain in surplus as exports will also fall, but not as much. Note that in 2021 the current account surplus exceeded $120 bn.Domestic bond and equity markets remain closed as the regulator is trying to understand how to resolve massive problems the financial system faced in recent weeks in sanctions-hit Russia. Among other things is the issue of margin calls and the sustainability of various market participants. Simultaneously, CDS on Sovereign debt shows an extremely high probability of default. To remind, the Finance Ministry has limited access to its FX accounts - similarly as the CBR to its reserves. Last week OFAC issued an updated license, which allows to Russian Government to execute regular debt payments. This week, Finance Minister Anton Siluanov said Russia ...