Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 16 Dec 2022 by Alexander Kudrin
The price cap on Russian oil, which the Western countries imposed recently (currently set at $60), caused only minor disruption for the market (if any) as Urals trades currently below this level. Markets capped the Urals price already long ago as the discount between Brent and Urals widened soon after the start of the special military operation. Lower oil prices naturally caused some weakening of the ruble. Russia announced some general counter-measures against the countries that joined the group of cap enthusiasts but knowing the details of these measures will be essential for better understanding the future setup of the oil market. Most likely, the situation will be more understandable in early 2023. In addition to the cap, the local FX market traders are cautious ahead of the new package of sanctions from the EU, which may contain a few new restrictions for the financial sector. The Finance Ministry continued to borrow actively in December. It raised R3.6 trillion in 4Q22 (or R3,8 trillion YTD), having focused on the placement of floating rate bonds, which matches the demand from commercial banks. The latter helped to maintain a relatively stable yield curve for fixed-rate papers. To remind you, the Minister of Finance said in early December that the budget deficit could reach 2% of GDP in 2022, which translates into R2,9 trillion. If one adds to this sum the amount spent on OFZ redemptions (R1 trillion), it turns out that the Finance Ministry’s target for issuance this year is R3,9 bln. If so, next Wednesday, it may issue bonds worth R100-200 bln in such a way as to complete borrowings for 2022. Inflation in seven days ending on December 12 was at 0.19%, and the MT...

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