Russia charges into debt

Russia, which scrapped a $7 billion Eurobond sale this year, plans to more than double its domestic bond sales in the next three years from the current level to finance the budget deficit.

The government will borrow 1 trillion rubles ($29 billion) to 1.1 trillion rubles on the local market annually, up from the 450 billion rubles now planned for 2014, Finance Minister Anton Siluanov told reporters in Moscow after a government meeting today. The government largely backed the minstry’s proposals for the 2015-2017 budget, he said.

Russia, which in May cut its domestic debt target by 358 billion rubles, is counting on increased investor appetite after demand for ruble assets suffered amid a plunge in the ruble on concern over Ukraine-related sanctions, as well as the central bank’s unwillingness to lower interest rates because of accelerating inflation.

“We see domestic borrowing as the main source of financing the budget deficit next year,” Siluanov said. “The state’s presence on the debt market will increase significantly.”

Under the Finance Ministry’s proposals, the federal budget will have a cumulative 1.4 trillion-ruble deficit during the next three years. The gap will be 0.4 percent of gross domestic product in 2015 and 0.6 percent in the following two years.

The government hasn’t decided yet whether it wants to increase external borrowing, which is still budgeted at $7 billion per year, according to the ministry.

The yield on Russia’s ruble-denominated bond due in February 2027 rose to as much as 9.71 percent on March 14 from 7.9 percent at the beginning of the year after the central bank’s surprise decision to raise its key rate by 1.5 percentage points. The yield rose three basis points, or 0.03 percentage point, to 8.57 percent by 5:19 p.m. in Moscow.

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