Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 25 Feb 2022 by Alexander Kudrin

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Russia’s war in Ukraine hit the markets badly all across the board. The impact on the economy is yet to be seen as consumer behavior may change again amid a shock the nation (at least part of it) felt on February 24. The already imposed sanctions on Russia will obviously squeeze the country’s financial markets. Demand for FX cash jumped in recent days as Russians queued to withdraw paper money from state-owned banks. The authorities warned media sources that they should use only official information while writing about the “special operation” in Ukraine. It may well be the case that a large part of the society gets only partial and biased information on Ukraine. The ruble shortly weakened to nearly R/$90 at some point, but then appreciated amid CBR FX interventions and hopes that the war would be relatively short. Banks’ net ruble liquidity position which used to be in surplus shrank.Russian financial markets were under significant pressure during this week. Dramatic fall in equity and bond prices was caused by the fear of tough sanctions, which forced foreign investors to close their positions. Given that foreign investors hold more than 50% of the Russian stock market (free float), such market performance was not a surprise. A few local banks were included in SDN list (including VTB bank), which means that foreign investors will be banned from owning their papers in several weeks. We suppose that international players will continue to decrease their exposure to Russian assets, especially if one takes into account that the geopolitical situation is deteriorating.Inflation remained elevated, having reached 0.24% in seven days ending February 18. Inflation MTD reached 0...