Page 135 - RusRPTJul24

As bne IntelliNews reported, there has been a big change in the Putinomics model since the war started with a shift from hoarding cash
and paying down debt, to spending freely and modestly increasing the economic
leverage by borrowing more on the domestic market. The result has been unexpectedly strong economic growth, but that is accompanied with tenacious inflation. (chart) <iframe
width="746" height="419" seamless frameborder="0"
scrolling="no" src="https://docs.google.com/spreadsheets/d/e/2PACX-1vShgIFqBFtD3Zmf5z awSbjmAIKXKL_mTbnltrtWjCdcJzvNhHByYzLbvoY38NTVTXAfx5eZ9zMXYItR /pubchart?oid=1376492976&format=interactive"></iframe>
In its last macroeconomic survey in April, the CBR predicted that inflation will fall from
the current 7.8% to 5.4% by the end of the year, but with inflationary pressures rising, analysts say that inflation is more likely to rise to over 8% by the end of this year.
Compounding the issue, Russian banks, the only buyer of OFZ after the foreigners left, are showing increasing reluctance to hold more sovereign debt. There is still plenty of liquidity in the banking system to buy more OFZ that taps a pool of around RUB19 trillion of banking liquidity, but enthusiasm for the bonds is fading, says Capital Economics.
“Siluanov called out Sberbank and VTB last year for failing to bid in OFZ bond auctions and on three occasions this quarter auctions ended unsuccessfully due to a lack of bids. Bond issuance this quarter has fallen sharply and an auction this week was called off amid “market volatility”. Lower appetite to hold sovereign debt likely reflects the growing share of bonds issued at fixed rather than floating rate this year as well as banks ramping up private sector lending. These shifts in the supply of and demand for OFZs have raised the term premium embedded in Russia’s sovereign bond yields,” says Peach.
Corporate lending continued to grow quickly in April, up 1.9% y/y with developers accounting for around a third of the increase as project financing for residential construction, the CBR said in its latest banking sector update. The feel-good rising real incomes coupled with a state subsidies mortgage programme have been fuelling the apartment buying boom in Russia’s real estate sector. Around three quarters of mortgage loans issued in April were issued as part of the government programmes, the CBR said.
The feel-good real income rise is also driving a surge in consumer borrowing, mostly by using credit cards, that is also worrying the CBR, which has increased the macroprudential limits on retail loans to try and head off a credit bubble forming.
135 RUSSIA Country Report July 2024 www.intellinews.com