Page 98 - RusRPTMar19

8.4 International ratings
International rating agency Fitch Ratings has affirmed Russia’s long-term foreign- and local-currency issuer default ratings (IDRs) at BBB- with a positive outlook, the agency said in a press release on February 16. “The positive outlook reflects continued progress in strengthening the economic policy framework underpinned by a more flexible exchange rate, a strong commitment to inflation- targeting and a prudent fiscal strategy,” the agency said, as cited by Prime. This policy has increased the economy’s resilience to shocks and helped preserve macroeconomic and financial stability despite the heightened sanctions’ risk and reduced investor appetite for emerging market assets in 2018, Fitch said. The agency projects that Russia’s inflation will accelerate to 5.3% in 2019 due to an increase in value-added tax (VAT), the ruble’s depreciation, and higher inflation expectations and will return to the target of 4% by 2020. Russia’s economic growth is expected to slow to 1.5% in 2019 and accelerate to 1.9% in 2020, Fitch said.
Fitch’s decision comes only a week after Moody’s returned Russia to “investment grade” rating, completing the hat trick of investment grade ratings from the leading ratings companies.
8.5 Fixed income
The Ministry of Finance may change its borrowing policy on February 13 by no longer announcing the volume of weekly OFZ (ruble-denominated debt) issuances in advance of auction. This move will allow MinFin more flexibility to react to changes in uncertain market conditions. By scrapping a set limit on bond placements, MinFin can sell bonds based on investor demand and the premium that investors ask for compared with the bonds’ yields. Demand has been quite unstable lately, so this change looks logical. Some economists argue that the reduction in transparency will make investors demand higher premiums, but others note that investors rely primarily on general market conditions, the ruble exchange rate, oil quotes, and profitability on the secondary market in determining premiums. Either way, it seems like a good move for MinFin to avoid the uncomfortable optics of incomplete placements.
· MinFin traditionally announces the volume of OFZ issuances on Tuesday, the day before auction.
· The ministry has experienced several volatile issuances lately. In the fourth quarter of 2018, MinFin offered 214bn rubles ($3.3bn) of OFZs, but successfully placed just 149bn rubles ($2.3bn).
· On January 16, the ministry successfully placed all 35bn rubles ($532mn), and demand more than doubled supply. A week later, MinFin only managed to sell 17.5bn ($266mn) of the announced 30bn ($456mn). · Last week, the ministry placed all 25bn rubles ($380mn), and demand once again exceeded supply by at least three times.
98 RUSSIA Country Report March 2019 www.intellinews.com