Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 05 Feb 2026 by Evgeny Gavrilenkov

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The FX market has stayed steady despite various external pressures. Interestingly, investors seem to overlook the drop in oil revenues for the budget. Reports say the discount on Russian oil to Brent hit $27/bbl in early February. Considering US pressure on India, a fall in oil-related export revenues seems almost inevitable. This would likely mean less FX supply in the market, as the fiscal rule doesn’t fully make up for the gap. We think the exchange rate will probably weaken in the near future, especially if import demand rises alongside stronger consumer demand after expected key rate cuts. Demand for OFZ remains subdued, with yields on 10Y papers fluctuating between 14.6% and 14.7%. On one hand, investors believe the CBR may pause its rate cut cycle in February, mainly due to higher-than-expected CPI in January, driven by the indexation of regulated tariffs (previously done mid-year) and a VAT hike from 20% to 22%. The combined effect of these two factors pushed inflation higher. On the other hand, market players are wary of a potential expansion of the 2026 borrowing program, which could grow not only if budget spending rises above the current target but also if the ruble becomes too strong. The budget assumes an average 2026 exchange rate of USD/RUB 92.2, and each ruble stronger than that could require roughly R100 bln more OFZ issuance. The OFZ market is expected to stay directionless until investors are confident the CBR is ready to cut rates. As of February 2, YTD inflation hit 2.11%, slightly higher than the 2.05% recorded on the same date in 2025. After an initial jump in the first half of January, inflation has lately settled at around 0.2% w-o-w, a rate a...