Russian stock market hits three-year low amid geopolitical tensions and rate cut

The Russian stock market experienced a sharp decline on June 22, with the MOEX index falling 4.23% to 2,318.28 points, marking its lowest level since March 2023 and the largest single-day drop since September 2022. The RTS index also fell 4.39%, to 992.75 points. The sell-off was broad-based, with shares of VK, Rosneft, and Aeroflot leading the declines, dropping 8.9%, 8.7%, and 8.1% respectively. The Russian government bond index also fell 1.54% to 115.68 points, a level last seen in mid-March.

Analysts attributed the downturn to a combination of factors, including worsening geopolitical tensions, the Bank of Russia's decision to cut the key interest rate by only 25 basis points to 14.25%—less than the market expected—and rising expectations of fuel price increases. The central bank's cautious rate cut was seen as a "hawkish" signal, suggesting concerns about inflation and future economic challenges. Economists noted that only two out of 19 surveyed expected such a small reduction.

Central Bank Governor Elvira Nabiullina stated on June 19 that the current market volatility does not require government intervention, unlike the emergency measures taken during the 2008 and 2022 crises. She emphasized that the situation is not extraordinary. However, analysts warned that the market could fall further. Yaroslav Kabakov, director of strategy at Finam, suggested the MOEX index could drop to 2,000 points, comparing the current environment to late 2021 and early 2022.

The index has lost 9.64% since the beginning of June and 16.21% since the start of 2026. The federal budget deficit for the first five months of 2026 reached 6 trillion rubles, equivalent to 2.6% of GDP, driven by advanced government contract payments and lower oil and gas revenues in some months. Expectations of a prolonged period of high oil prices to ease the deficit have been dampened by the US-Iran agreement and the opening of the Strait of Hormuz.