Russia plans to scale down state domestic borrowings after 2020
Running out of options to bolster public finances besides the collapse of oil prices, Russia has more than doubled its domestic borrowing plan
Russia’s finance ministry plans to scale down selling of OFZ treasury bonds in 2021 and beyond, hoping the budget will no longer require massive borrowings as it did this year amid the global coronavirus crisis, a senior official said.
Running out of options to bolster public finances strained by the pandemic and the collapse of oil prices, its main export, Russia has more than doubled its domestic borrowing plan in 2020.
Russia has raised around 5.2 trillion roubles ($68.84 billion) in OFZ bonds by end-november and eyes selling 3.7 trillion roubles worth of OFZS in 2021, said Pyotr Kazakevich, head of the state debt department at the finance ministry.
“We assume that 2020 is a unique year for the Russian budget and that such massive borrowing will not be needed in the coming years,” Kazakevich told reporters late on Wednesday.
By the end of the year, Russia may need to borrow up to 350 billion roubles more, Kazakevich said, testing demand for various OFZ tenors.
On one auction day in late October, the finance ministry managed to borrow a record 436 billion roubles with the help of state-run banks, the main buyers of OFZ bonds that used to be popular among foreign investors thanks to lucrative yields.
OFZ yields fell this year as the Russian central bank slashed its key interest rate to a record low of 4.25% to support the economy with cheaper funds. But Russian yields remain atractive versus many of its peers.
Non-residents’ share among holders of OFZS stays at 25-30%, having slipped recently as the finance ministry increased offering of OFZ with coupon payments pegged to money-market rates, so-called floaters, while foreigners prefer fixed coupon instead, Kazakevich said.
“We don’t feel panic mood from non-residents now... We can not rule out the imposition of new sanctions against state debt but we deem them unlikely as, to a large extent, it will be against the interests of foreign investors.”
Shrugging off Washington’s decision to impose restrictions for US banks on buying sovereign Eurobonds directly from Russia, Russia tapped the global Eurobond market in November, raising 2 billion euros ($2.38 billion).
Meanwhile, Investment in Russian brokerage accounts rose by a record 1.3 trillion roubles ($17.3 billion) in the third quarter to 12.7 trillion roubles, the central bank said on Thursday, a trend driven by record low interest rates and COVID-19.
The bank said 1.6 million individuals opened brokerage accounts from July-sept alone, a record quarterly rise.
“We see huge interest from investors in the stock market,” said Alexander Ivanov, head of one of the central bank’s analytics departments. “As of Sept. 30 more than 7.6 million brokerage accounts had been opened, of which 3.4 million were opened by investors in 2020.”
Ater a three-year drought, several Russian companies have staged initial public offerings this year, most recently online retailer Ozon, which raised almost $1 billion from its New York share listing on Tuesday.
Homebuilder Samolet went public in October and shipping giant Sovcomflot raised about $550 million earlier that month.
Russian stock markets surged to multi-month highs on Thursday, boosted by relatively high oil prices and optimism that vaccines against COVID-19 could be ready sooner than expected.
The dollar-denominated RTS index was up 0.4% to 1,306.5 points, earlier reaching its best since August 19. The rouble-based MOEX Russian index was 0.1% higher at 3,136.2 points, a more than nine-month high.
The International Monetary Fund (IMF) told Russia to cut rates and lowered 2021 growth forecast. Russia should consider cuting interest rates even further in the coming months as inflation is on track to undershoot its target in 2021 amid lower-than-expected economic growth, IMF said on Tuesday.
Russia had slashed rates to record lows this year as the economy was hit by the COVID-19 pandemic and lockdowns to contain it and by lower prices for oil, its main export.
“We project below-target inflation for some time and hence recommend policy easing in the coming months,” the IMF said in a report ater regular consultations with Russian authorities.
The central bank could even lower the rate below 4%, its inflation target, Jacques Miniane, IMF Mission Chief for Russia, told an online media briefing.
The central bank holds its next rate-seting meeting on Dec. 18. A Reuters poll of analysts conducted in late October predicted it will keep its benchmark interest rate at 4.25%.
The IMF said it expected annual inflation in Russia to stay in the range of 3-3.5% in the second half of 2021.