Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 03 Feb 2023 by Alexander Kudrin

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Generous budgetary spending helped to increase banks’ net liquidity position with CBR, which surpassed R3 trln - for the first time since September 2022. Excessive liquidity caused inflation to accelerate and pushed money market rates well below CBR key rate. This situation is likely to remain in place for the next several weeks. It may potentially weaken the ruble to be triggered by the forthcoming package of new sanctions. The situation on the equity market remains stable. Investors are waiting for details of a forthcoming sanctions package from the EU (expected to be announced by February 24 to mark the anniversary of the special military operation) and the price cap for Russian oil products. Most investors prefer to keep neutral positions ahead of these events. Minfin continues to place fixed-rate papers, and since the beginning of the year, the aggregate amount of borrowings reached R350 bln. However, the yield on the secondary market is moving higher as some investors expect inflation m-o-m to accelerate, which may prompt the CBR to raise the key rate in 2H23. As a result, the cost of funding for the Ministry of Finance in the long end of the curve exceeded 10.5%. In seven days ending on January 30, inflation w-o-w was relatively high (0.21%), which brought the MTD tally to 0.74%. Inflation m-o-m in January 2021 was 0.99%, implying this year, it will be below that level (note that Rosstat uses different consumption baskets to calculate w-o-w and m-o-m inflation numbers). Even though inflation y-o-y is predetermined to fall in February and March amid a base effect, the main concern is related to persistently elevated inflation w-o-w (or m-o-m) to be fueled by budg...