Possible new sanctions to speed up non-residents leaving federal loan bond market

21 june 2017 | Rossiyskaya Gazeta

Elvira Nabiullina, head of the Central Bank of Russia, does not expect new American sanctions to influence considerably the financial market, and she believes the effect of previously imposed sanctions has almost worn off. That was her comment on a possible US ban on investments into Russian public debt and related derivatives, and further limitation of Russian banks' financing period in the US from 90 to 14 days.

Daniil Nametkin
Daniil Nametkin
Department for Expert Analytics

"Possible new sanctions will prompt non-residents to leave the federal loan bond market, where they currently own 30 per cent of the nominal value - RUB 1,8 trillion,"  said  Daniil Nametkin, expert of the Analytical Center, to a Rossiyskaya Gazeta correspondent.  He believes  it is a bridging gap between real interest rates in Russia and the US that prompts them to leave, and that gap is a result of decisions made by the Central Bank and the Fed last week. According to the carry trade strategy, in this case one needs to lock in profits, closing long positions in ruble assets.

Since inflation expectations have not yet stabilized, the Russian Central Bank by no means can have pressure on the ruble provoking a surge in prices (it would be caused by rising import cost). Since early June, Russian currency has lost about 1,5 per cent, against the background of gradually decreasing foreign investment  in OFZ bonds and falling exporters' demand for rubles to pay dividends.  "Non-residents are likely to convert  dividends from Russian companies, which are normally paid in June and July. It also  increases the risk of a weaker ruble," said Nametkin. "Coupled with Brent oil prices below USD 40 per barrel, it may force the Russian Central Bank to adopt a more cautious approach to a further  key interest rate decrease, in comparison previously prepared consensus forecast with a rate of 8,25 per cent by the end of the year."

 

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