Russia’s newly-elected Prime Minister and record-low bond yields

On 15 January, Putin’s state-of-the-union speech took Kremlin-watchers by surprise. He announced the resignation of former Prime Minister Dmitry Medvedev along with the entire cabinet, as well as a number of constitutional reforms. The latter includes granting parliament greater powers over the cabinet, judges and security services, and increased powers to the State Council. This would make his successor as president less powerful by redistributing powers of the presidential position to the parliament and State Council. Should Putin head the newly empowered State Council after stepping down, he could wield significant influence on his presidential successor.

Appointing Mikhail Mishustin as Prime Minister has received mixed reviews from investors in Russian markets. On the optimistic side, he has considerable experience in managing the economy. Prior to his appointment as Prime Minister, he served as the head of the Federal Tax Service, where he created a reputation as a skilled technocrat who reformed the country’s fiscal system through digitalising tax collections. Considering the economic slowdown of Russia, he plans to oversee a 417 billion USD stimulus programme of ‘national projects’ and a social spending package of around 8 billion USD, aiming to improve standards of living. He also aims to turn the government into a ‘digital programme’, boosting exports, improving road infrastructure, repairing a damaged business climate and attracting foreign investment.

Optimistic investors such as Jack Grapengeisser, partner and head of Eastern Europe at East Capital in Moscow, states that he expects a “focus on efficiency and growth,” which is “positive for the Russian investment case.” As a result, it would lead to a “stable economy and unjustifiably low valuations on stock.”

Despite Mishustin’s economic ambitions and former experience in modernising Russia’s tax service, his appointment seems to have erased the spike on the yields on local-currency OFZ bonds on Wednesday evening (figure 1).