Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 13 Mar 2025 by Evgeny Gavrilenkov

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The Russian market remains positive, assuming the possibility of a peace settlement in Ukraine. The latter encouraged investors to bet on further strengthening of the ruble, and it went from R/$89 to R/$85 after the start of negotiations between the US and Ukraine in Saudi Arabia. However, other factors could have been behind the ruble’s recent appreciation, such as the global weakening of the dollar and a growing use of alternative currencies - as well as other means to settle foreign trade contracts. The latter steadily reduces demand for “unfriendly” currencies. Whatever the mix of factors is, the current USD/RUB level is too strong as it started meaningfully to suppress budget revenues associated with the exchange rate (VAT on imported goods, export duties, etc.). In the still highly hypothetical case of reaching some agreements on the Ukrainian issue and lifting some sanctions, imports could soar while exports remain stagnant. The ruble has to weaken in this case – even if the use of national currencies and other means of payment for foreign trade contracts remains high. In any case, the ruble volatility will remain very high (the 10d indicator is currently close to 20%), which doesn’t look comfortable to investors. The Ministry of Finance used the momentum to increase the amount of borrowings. From the beginning of the year, by March 5, it placed OFZs worth over R1 trln (the plan for the entire 1Q25 assumed R1 trln total placement). We were sure that the issuer would continue to issue more papers. The annual borrowing program is ambitious (R4.8 trln), and the government will be keen to fulfill it as soon as possible. There was no surprise on March 12, when Minfin...