Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 11 Aug 2022 by Alexander Kudrin

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The Russian monetary authorities continue to discourage local clients from keeping funds in unfriendly currencies in the domestic financial system. Last week the Russian President signed a decree that allows sanctioned banks to freeze accounts of legal entities nominated in the currency of those countries that imposed restrictions. As a growing number of banks introduce fees for maintaining FX accounts, it will likely lead to an additional supply of FX on the open market. The latter may help the exchange rate remain excessively, even if oil continues to fall down. Investors’ activity in the domestic financial market is not very high due to the summer holidays. OFZ yields are stable as local players are concerned about potential changes in CBR monetary policy in 2023. Meanwhile, the current levels indicate that investors already priced in another key rate cut by 25-50 bps. The money market interest rate dropped below 8% after the regulator decided to cut the key rate to this level at the end of July. Local investors currently concentrate on the 'repatriation' of fixed income papers, which remained frozen in this or that form. The recent amendments to the domestic legislation allow doing that even without participation from international counterparties. We expect this process to accelerate in September and October. Besides that, companies started exchanging 'old' Eurobonds, which circulate in the local clearing system, for 'new' papers issued under Russian law. Deflation in the country remains steady as Rosstat reported it was at 0.39% m-o-m in July. It brought down inflation YTD and Y-o-Y to 10.98% and 15.10% accordingly. Prices continue to fall this month as well, as, ...