The banks and the borrowing crunch

Hello! Welcome to your weekly guide to the Russian economy, written by Alexandra Prokopenko and Alexander Kolyandr and brought to you by The Bell. This week we analyze how the state is struggling to raise funds from state banks, just at the time when it needs them most.

Borrowing pause, budget hole

The Russian government is facing an unexpected problem — borrowing has become prohibitively expensive at the same time that issuing debt is the primary source of funding its widening budget deficit. Yields on new Russian government debt issues are up to 16.7% as investors price in the decreasing likelihood that the central bank will rapidly cut rates, accumulating budget risks, the threat of stagflation and geopolitical premiums. This cocktail of problems has forced the finance ministry to suspend auctions of its OFZ bonds indefinitely.