Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 14 Apr 2023 by Alexander Kudrin

---

The ruble continued to depreciate in recent weeks as investors weighed the effects of the current turbulence in the US and European banking sector and the likelihood of an economic recession. If this assumption is correct, global energy prices may be under pressure. It may add problems to the Russian budget and place more pressure on the national currency. Interestingly that market almost ignored the tightening of conditions on the money market, where the RUONIA rate grew from 7.0% to 7.4% in the second half of March amid tightened ruble liquidity. Even though banks’ net liquidity position with the CBR remained in surplus, by the end of March, this surplus contracted to about R1 trln from almost R4 trln in the middle of the month. OFZ yields remain more or less stable. The Finance Ministry continues to place papers to finance the budget deficit. The total amount the ministry was able to raise in 1Q23 was close to R800 bln. We expect market conditions to be more supportive of the issuance as inflation y-o-y will further decelerate in April due to the base effect. Meanwhile, rapidly falling inflation will spark discussion about potential CBR rate cuts in 2023. If so, additional demand on long-term OFZs (currently traded with a 300+ bps premium to the money market rate) looks likely. According to Rosstat, inflation in the seven days ending on March 27 was 0.05% w-o-w and 0.17% MTD, which brought the YTD tally to a mere 1.47%. Inflation slowed fast not only in y-o-y terms but w-o-w as well. By the end of March, the y-o-y inflation will fall to 3.3%, given that in March 2022, it reached 7.61% m-o-m. In April, inflation may come down to about 2.0% y-o-y, as in April 2022, it...