Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 14 Aug 2025 by Evgeny Gavrilenkov

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The Russian markets turned into a moderately positive mood after the announcement of the US-Russia summit in Alaska. Despite that investors remain skeptical regarding a ceasefire in Ukraine in the near term, some of them hope for a kind of progress in bilateral relations between Washington and Moscow. The latter pushed the equity market up by 8%, while the USD/RUB remained almost unchanged and displayed no reaction to geopolitical news. The FX market seems to be more sensitive to local interest rates. Investors assume that even in the best case the sanctions regime is unlikely to be eased any time soon. If so, conditions for international trade will remain the same and Russia will continue to rely on national currencies for export/import settlements with its foreign trade partners. Hence the ruble turned stronger than it used to be years ago. As the economy markedly slows (in 2Q25 GDP was up by 1.1% y-o-y according to Rosstat’s flash estimate) imports are unlikely to grow. The OFZ market continued to rally amid four deflationary weeks in a row. Markets have started to speculate that the CBR may cut the key rate by 200 bps already in September. Weak economic growth numbers could be another factor prompting the CBR to act more decisively. The combination of these factors pulled long-term OFZs yields below 14%, posting a compression by over 160 bps compared to early June. In our view, government bonds look “expensive” as a growing budget deficit may force the authorities to exceed the 2025 borrowing target. Moreover, demand on the primary market started to ease in the past couple of weeks, hinting at a possibility of further downside price adjustment. In the current envir...