Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 18 Jan 2024 by Evgeny Gavrilenkov

---

The ruble strengthened in the first weeks of 2024 to R/$87-88 from R/$90-91 at the end of 2023. Since January 15, the CBR has increased FX sales from the National Wealth Fund (NWF) from the expected R12.6 bn to R16.7 bn daily. The CBR had to adjust its plans amid a lack of federal budget revenues, which is not unusual for the early year due to a prolonged public holiday season at the start of the year. The execution of the budget will play a significant role in the FX market this year as the CBR decided to mirror all government operations with the NWF. Minfin conducted its first primary placement of OFZ and placed bonds worth R97 bn. Initially, the 1Q24 issuance target assumed R800 bn, implying borrowing at least R72 bn every auction day. The government plans to place primarily bonds with a fixed rate. However, given an unstable inflation environment, future CBR actions are not entirely clear yet, as uncertain inflation trends may limit demand for such papers. We don't rule out that to raise additional cash, the Ministy of Finance may adjust its plans and start issuing floaters as well. In December 2023, inflation m-o-m was at 0.73%. It was slightly lower than one could expect on the basis of w-o-w statistics reported last month. The reason stems from different baskets to calculated flash estimates of w-o-w inflation and the final m-o-m prints. The latter basket covers a broader range of goods and services. Inflation y-o-y stood at 7.42%. In early January 2024, inflation still remained elevated as on January 9, it reached 0.26% MTD, and in the seven days ending on January 15, it was at 0.13% w-o-w. Therefore, the MTD inflation on that day reached 0.39%. Inflation remai...