Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 24 Oct 2024 by Evgeny Gavrilenkov

---

After the end-September rally, the FX market recently remained relatively stable. The ruble hovers around USD/RUB 97 level and looks slightly undervalued. Technically, it may moderately appreciate in the coming weeks, especially if the CBR decides to raise the key rate. However, the budgetary spending spree at the of the year (the federal budget deficit will widen in 4Q24 massively as the amended budget expenditures will reach R39.4 trln versus the initial plan (R36.6 trln) and the preliminary amendment (R37.2 trln). As in 9M24 federal budget expenditures reached R26.1 trln, in 4Q24 the authorities will spend unprecedented R13.3 trln. Even though the revenue flow remains stable, the federal budget deficit might be close to R3 trln (in 9M24 it was in slight surplus). Such a budgetary spending policy leaves almost no chances for further sustainable strengthening of the ruble. At the same time, cash injection from the budget will add liquidity to the interbank money market. The latter may be supportive for other segments of financial markets as well. OFZ market already priced in another rate hike by the CBR this Friday. Moreover, some investors don’t rule out that the regulator may increase the key rate by more than 100 bps. As a result, the yield for long-term papers stays above 16%, while the demand on the primary market is weak. Until the year-end, Minfin intends to place OFZs worth R2.3 trln, and on top of that, the State Duma allowed the government to borrow more this year if federal budget revenues lag. As a result, the total issuance may reach R2.5 trln in the remaining 2.5 months of the year. We suppose most of these borrowings will come as floating rate papers - ...