Worrying Signals From Local Debt And Money Markets

August 2008 | Market Strategy

Russian local debt and money markets continue to look weak after the Central Bank of Russia (CBR) further tightened monetary conditions by announcing across-the-board 50bps hikes to banking sector lending requirements on August 1. Going forward, we believe that benchmark rates and yields are likely to rise further as monetary authorities continue to tighten credit conditions. We hold to our view that the benchmark refinancing rate will be hiked by another 50bps to 11.50% with a concomitant hike in the floor of the overnight repo rate to 7.50% likely. With inflation forecast to remain in the double digits through 2009, a medium-term market adjustment to bring lending rates back into positive territory is also expected.

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