Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 31 Jul 2025 by Evgeny Gavrilenkov

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The CBR cut the key rate by 200 bps to 18% in line with market expectations. The regulator’s rhetoric was rather neutral, while many investors expected a more dovish tone. As a result, the OFZ yields contracted moderately. We think these expectations seemed unfounded, as the CBR had never sounded dovish previously. Nonetheless, the Finance Ministry placed more than R210 bln of bonds during the last auction day. The yield for 10-year paper approached 14%. However, the potential for further moves is limited as monetary policy remains unclear, while bond supply from the issuer is high. Besides, continuous geopolitical tensions create additional pressure on the market. The ruble has weakened by almost 5% over the last week. On the one hand, the reason for that was fear regarding new sanctions against Russia, this time in the form of additional tariffs for countries that trade with Russia. Mr. Trump has promised to introduce the sanctions within the next 10 days. It is unclear how the mechanism will work, but oil prices jumped on the back of such news. On the other hand, after the CBR has cut the rate, the spread between interest rates between the RUB and the USD zones has narrowed (albeit it still remains significant). According to the opinion of the regulator, this difference was one of the main reasons for the currency to remain strong. Once this spread narrows, the USD/RUB rate should change (according to the CBR's logic). In any case, a further weakening of the ruble will be natural. Another week appeared deflationary as in the seven days ending on July 28, the consumer price index fell by 0.05% w-o-w. Inflation MTD and YTD decreased to 0.71% and 4.51%. In July 2024, M...