After postponing the reopening of the Moscow Exchange for three weeks, it appears that the Central Bank of Russia is finally ready to take its licks. It was announced on Friday that the exchange would be resuming trading at least to some degree as of the market open on Monday, after having been shuttered on February 25 following the invasion of Ukraine.
The return to trading is said to be gradual in nature, with the trading of OFZ bonds to resume as of Monday. OFZ bonds are coupon-bearing federal loan bonds that have been issued by the Russian government, which as per Reuters “are designed to plug budget holes.” Trading of such bonds however will be faced with the fact that the United States has since placed restrictions on the trading of such debt as of March 1, significantly limiting international participation.
While the bonds will resume trading on Monday, the Central Bank stated that in order to “prevent excessive volatility and ensure a balanced liquidity position,” they will have the Bank of Russia purchase federal government bonds. In other words, the Bank of Russia will be standing by to “buy the dip” and prevent the market from having a Black Monday-type event upon reopening.
In terms of the value that the Bank is willing to throw at stabilizing the bonds, it was simply stated that “purchases will be made in the amounts needed to prevent risks to financial stability.” Once stability has occurred, they intend to then sell the portfolio of bonds purchased.
Further details on the resumption of trading of other aspects of the Moscow Exchange were not provided.
Within the same announcement, the Bank commented that they expect current inflation to return to their targets by 2024, however in the interim they saw demand for non-food goods skyrocket in late February, while now the trend is for citizens to purchase as much non=perishable food products as possible. Working to calm fears, the Bank stated that “These products are mostly manufactured in Russia using domestic raw materials. Russia has sufficient stocks of these products, and companies continue to manufacture them.”
The Bank followed this up by stating that “inflation will exceed our previous estimates,” for both 2022 and “most probably” 2023, while GDP is expected to decline.
On Friday, the Bank of Russia also elected to keep the key rate at 20%.
Information for this briefing was found via The Central Bank of Russia and Reuters. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
