Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 25 Aug 2022 by Alexander Kudrin

---

The situation in the Russian FX market remains calm. The exchange rate fluctuated in a relatively narrow range of R/$ 59-61. Trading activity was rather moderate amid the summer holidays and more or less neutral news flow. One of the most intriguing events happened on Aug 18 as a daily turnover in R/CNY trading exceeded the amount of trading in R/$. Demand for the Chinese currency grows from households and corporations alike as it is considered a reasonable alternative to the US dollar and the euro as a tool for diversification. Apart from that, some Russian borrowers started offering bonds nominated in CNY, as Rusal and Polyus pioneered with the two placements in July-August. More papers are to come in autumn. Moreover, we don’t rule out Minfin tapping this segment as well. Domestic banks’ net liquidity position with the CBR is abundant as it reached R2.7 trln at the end of August. As a result, the money market rate (RUONIA) is traded below the CBR’s key rate. At the same time, OFZ yields increased a little, and for 10-year papers exceeded 9%. The latter reflects certain fears of market participants that the rate cut cycle is close to the end. Besides that, a potential return of the Finance Ministry to the primary market in the coming months makes them cautious as the issuer may offer premiums during the auctions. Deflation in Russia continues as it reached MTD 0.38% as of August 22. As a result, the YTD inflation fell to 10.51% that day. One can expect a few more weeks of deflation, which will gradually moderate, and then price consumer change will turn inflationary, which is likely to be moderate also. It seems that consumer demand showed signs of recovery, and dura...