Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 28 Aug 2025 by Evgeny Gavrilenkov
Demand for OFZ has declined recently as many investors are taking profits, with long-term yields falling below 14% and further drops appearing uncertain, even with a potential 200 bps rate cut by the CBR in September. Market participants are also cautious about additional supply from Minfin due to a larger-than-expected budget deficit, leading to a nearly 50% drop in issuance volumes month-on-month (R157.9 billion average per auction day in July versus R86.1 billion this month). The yield curve could rise in the coming months, especially if inflation data weaken expectations for swift monetary policy easing. The ruble remains stable, slightly above R/$80. The government has reduced the export revenue repatriation requirement from 40% to zero, which will have little short-term impact as exporters sold over 90% of their proceeds from January to May. However, removing the mandatory sale of export revenues could increase exchange rate volatility during unstable periods. The ruble could weaken further, as it appears overvalued in real terms (REER remains near 2014 peaks). Deflationary weeks seem to be ending, and September's CPI might start to rise moderately. During the seven-day period ending August 25, Rosstat reported a weekly inflation rate of 0.02% w-o-w. The MTD period was still deflationary (-0.17%), while YTD inflation reached 4.18% on that day. If weekly inflation returns, the CBR may face additional challenges, especially as economic performance worsened further in July. The regulator might proceed cautiously when deciding on the extent of a key rate cut.

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