Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 21 Nov 2024 by Evgeny Gavrilenkov

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Fears of a new wave of military escalation in Ukraine were the main driver for the Russian FX market during the last two weeks. On the back of this, the exchange rate surpassed the R/$100 benchmark. The equity market also went down - by about 3%. Investors are also concerned by the CBR’s another phase of monetary policy tightening next month, given that inflation remains elevated. In the past two weeks CPI prints were 0.3% w-o-w and 0.37% w-o-w. The latter creates pressure over the country’s entire financial assets’ universe, including OFZs, where 10Y paper yields jumped above 16% The CBR announced a restart of 1-month REPO auctions, where the regulator will supply banks with funding backed by tradable securities. The minimum rate will be set at the key rate plus 10 bps. The auctions will take place every week until March 2025. Note that for the rest of the year, Minfin targets to place on the open market about R2.1 trln of OFZs. We suppose the government may soon start offering floating-rate papers with 60-70 bps over to RUONIA, and the aforementioned forthcoming source of financing from the CBR may fuel banks’ demand for these papers. As weekly inflation remains elevated the MTD and YTD inflation reached 0.79% and 7.41% on November 18. Given the ongoing budgetary spending spree, there are almost no chances of seeing inflation decelerating any time soon. A weakened ruble also creates inflationary pressure. If this level of weekly inflation persists, then in November as a whole, it will likely exceed last year’s November print (1.11%). Inflation will likely stay above 1.0% in December also. If so, then chances of seeing another key rate hike on December 20 (next CBR’s ...