Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 05 May 2022 by Alexander Kudrin

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The potential embargo on Russian oil, which is in discussion among other measures within the sixth sanctions package by the EU, pushed prices on the international market above $110 per barrel. The latter was supportive for the ruble, which at the beginning of May strengthen to around R/$66 (+21% since the start of April) and was even stronger over some hours of trading. This level is seen as too strong as it may hamper local production and exports of manufacturing goods. Imports remain under pressure, while exporters prefer to switch their revenues from hard currency into rubles not only due to obligatory sales of a certain amount of their export earnings but voluntarily as well, as the risk of seizure of their assets by foreign governments is high and growing. The CBR is likely to ease capital control restrictions and may reduce the requirement of obligatory sales of export revenues from 80% to 50%. But this step will have only a limited impact on the exchange rate and weaken the ruble to a more reasonable level as imports will remain suppressed.Russia managed to avoid default and paid the interest and principal on two issues of Sovereigns not from the frozen reserves (as was done in March) but bought the currency of the open market. However, the existing OFAC license, which allows US banks to service such payments and US investors to accept them, expires on May 25. It’s unclear whether it could be extended or not, but CDS contracts still point to an extremely high likelihood of default in the near term. The equity market grew moderately as the regulator clarified that local paper, which foreigners are receiving due to the cancellation of ADR programs, will not be tra...