Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 21 Apr 2022 by Alexander Kudrin

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As the western countries dramatically cut exports to Russia, demand for FX fell considerably, and the ruble appreciated in recent days to around the R/$80 level (though, the ruble still remained volatile). The ruble appreciation was also backed by capital controls and a reduced appetite to take money from Russia amid growing risks that sanctions will keep spreading permanently toward a greater number of individuals and companies. So far, the supply of FX on the local market is sufficient, and export earnings continue to flow in the country even though volumes of exports could have declined (in the current situation the CBR stopped publishing monthly statistics on foreign trade, as well as some other data). Interestingly, the spread between Urals and Brent in recent days exceeded $36 but given that Brent was close to $110/bbl the Urals price was high enough to keep the money flowing in, including the budget. It looks as though the federal budget in April should be in surplus again as the Ministry of Finance keeps supplying the banking system with the ruble liquidity by using various instruments, such as deposits, repo, etc. The total amount of outstanding claims on banks stay around R 4.4 trln. As a result, the CBR reduced its liquidity operations with banks, and the latter’s net liquidity position with the CBR turned strongly positive. RUONIA fell below the key rate.The CBR’s decision to cut the interest rate by 300 bps since April 11 pushed OFZ yields lower. Moreover, in the aftermath of decelerating w-o-w inflation investors expect the regulator to make another cut at the end of the month. Combined with an absence of primary supply, this creates ground for further de...