Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 25 Mar 2022 by Alexander Kudrin

---

As the oil price has moved higher, in recent days hovering around $120/bbl, the ruble bounced back and has seemingly stabilized. Accordingly, banks became less dependent on the liquidity provided by the CBR. Still, the ruble fluctuated in a wide range amid the unstoppable news flow. An idea to start selling gas to “unfriendly” countries in rubles had a mixed impact on the market. On one hand, it is not clear whether technically this can be possible any time soon. On the other hand, if it comes into effect, then demand for rubles will rise. However, the decisiveness of Russian policymakers to push this idea forward may indicate that they would go ahead with it even if the "unfriendly" countries object and both sides enter the process of terminating existing contracts and their legal battles. If this happens, then Russia’s exports will shrink even more than is currently expected. From the point of view of Russian policymakers, the reasoning to start trading gas in rubles is quite clear. Because the imports the country needs are restricted, Russia doesn’t need to export as much as it did in the past and continue to hoard extra cash denominated in unfriendly currencies as these savings can be easily confiscated. Even paying foreign creditors from these revenues has become complicated and may become completely impossible soon. Why, then, trade with unfriendly states at all?The OFZ market reopened on March 21 for local participants with the participation of the CBR, which put bids to cap potential volatility. However, despite the negative expectations, the participation of the regulator was unnecessary, and the market managed to find the equilibrium by itself. The curve is i...