Friday, January 30, 2015

Russia cuts rate 200 bps to avoid further hit to growth

    Russia's central bank slashed its key policy rate by 200 basis points to 15.0 percent to avert "the sizable decline in economic activity against the background of negative external factors."
    The Bank of Russia said its most recent rate rise - it raised rates by a total of 1,150 basis points last year including 650 points in December - had helped stabilize inflation expectations and the value of the ruble, describing the current "surge of inflation" as temporary and driven by an adjustment to the past depreciation of the ruble.
    Russia's ruble has tumbled 53 percent against the U.S. dollar since the start of 2014, with most of the decline in the second half of last year as its conflict with Ukraine intensified, Western sanctions were imposed and crude oil prices tumbled.
    This year the ruble has declined over 15 percent but gained slightly to around 70.5 to the dollar from 71.30 in response to the central bank's rate cut.
    Consumer price inflation accelerated to 13.1 percent as of January 26 from 11.4 percent in December and 6.1 percent in January 2014.
    Inflation is expected to peak in the second quarter but then slowly ease in response to economic weakness, falling money supply and lending growth, dropping below 10 percent by January 2016.
    Russia's economy has been hit hard by the combination of sanctions and lower oil prices - oil accounts for over half of Russia's exports and some 15 percent of economic output - and the central bank estimates Gross Domestic Product will shrink by 3.2 percent in the first half of 2015 compared with the same period in 2014 as Russian borrowers are cut off from foreign financial markets, low oil prices slow investments, wages and consumer demand decline.
   In the third quarter of last year GDP expanded by only 0.4 percent from the second quarter for annual growth of 0.7 percent, down from 0.8 percent, and the central bank estimated growth for the full year of 0.6 percent.
    A pick-up in growth in December was largely due to temporary factors, such as growing demand for durable goods amid higher inflation expectations, the central bank said.

    The Bank of Russia issued the following statement:
"On 30 January 2015, the Bank of Russia Board of Directors decided to reduce the key rate from 17.00 to 15.00 percent per annum due to the shift in the balance of risks of accelerated consumer price growth and cooling economy. The decision to dramatically raise the key rate taken by the Bank of Russia on 15 December 2014 resulted in stabilisation of inflation and depreciation expectations to the extent the Bank of Russia expected. The current surge of inflation is driven by the accelerated price adjustment to the ruble depreciation being time-limited. Further the inflation pressure will be contained by decrease of economic activity. According to Bank of Russia forecast, consumer price growth will be lower than 10% in January 2016. 
According to the results of the year 2014, inflation totaled 11.4% while core inflation was 11.2%. Meanwhile, in December 2014, monthly consumer price growth was 2.6% amid considerable ruble depreciation, growing inflation expectations and increased consumer demand for non-food items. As of 26 January, annual consumer price growth rate was 13.1%. According to Bank of Russia estimates, monthly consumer price growth will moderate slightly in January 2015, but annual inflation will continue the upward trend with a peak in the Q2 of 2015. 
Current monetary conditions set the ground for inflation decline in the medium run. Annual money supply (M2) growth rate decreased considerably. Significant growth of interest rates on household deposits will stimulate the propensity to save and increase the attractiveness of deposits. Given lending rates hike and tighter borrower and collateral requirements, lending growth (adjusted for currency revaluation) slowed down.
Certain increase of economic activity in December 2014 was driven by temporal factors, including growing demand for durable goods amid higher inflation expectations on the back of more rapid exchange rate pass-through. According to Bank of Russia estimates, the annual real GDP growth rate for the year 2014 will amount to 0.6%. Further substantial decrease of output is expected amid the deterioration of external conditions resulting from oil price drop and foreign financial markets inaccessibility for Russian borrowers. Amid the increase in prices for the imported investment goods, deterioration in financial performance of companies, persistently limited access to long-term financing, and tighter lending conditions, fixed capital investments will continue to contract. Real wage decrease and a slowdown in retail lending growth will result in lower consumer demand. The negative impact of deteriorated external conditions will be only partially mitigated by the exchange rate dynamics. According to Bank of Russia estimates, annual GDP growth will amount to (-3.2%) in the first half of 2015. The decision taken is aimed at averting the sizeable decline in economic activity against the background of negative external factors.
The ruble depreciation will further affect the prices of goods and services contributing to the likely increase in annual inflation in the next months. Nevertheless, inflation and inflation expectations are forecasted to decrease as the economy gradually adjusts to changing external conditions and the impact of the exchange rate dynamics on prices exhausts. Slowdown in consumer price growth will be facilitated by subdued aggregate demand with total goods and services output remaining below the potential as well as by slightly tight fiscal policy. Inflation is expected to be lower than 10% in January 2016. 

The next meeting of the Bank of Russia Board of Directors on the key rate is scheduled for 13 March 2015. The press-release on the Bank of Russia Board of Directors’ decision is to be published at 13:30 Moscow time. "

an 27 (Reuters) - Russia's rouble climbed on Tuesday, recovering some of its poise following a 6 percent drop the previous day after ratings agency Standard & Poor's cut the country's rating to junk, though Moscow stocks traded lower.
The rouble advanced 1 percent against the dollar but Moscow's dollar-denominated RTS index was 0.7 percent lower with investors fretting about possible new western sanctions.
Russia's stock market was closed when S&P announced on Monday it was cutting Russia's rating from BBB- to BB+, citing a weakened economic growth prospect.
"This (downgrade) is clearly a major headline risk that is going to affect rouble assets in the near term, even though current prices would suggest that a move was to a large extent priced in. Looking ahead, it will be interesting to watch what forced selling occurs on the sovereign debt," said Benoit Anne, head of emerging markets strategy at Societe Generale.
The cost of insuring exposure to Russian debt rose past the key 600 basis point mark, according to data provider Markit, while the premium investors demand for holding the country's bonds over U.S. Treasuries touched fresh 6-week highs. .

EU governments who meet on Thursday are also considering new sanctions on Russia, citing Moscow's "continued and growing support" for separatists in eastern Ukraine.

jan 21 The Russian Central Bank said on Wednesday that it first takes controlling inflation into account when it makes decisions on its key interest rate.
The bank also said it would be willing to lower its key rate if there was a stable trend of falling inflation and inflation expectations.
Consumer prices rose 11.4 percent in December in annual terms, and the Economic Development Ministry has warned that inflation may peak in the spring at 15 to 17 percent.
Falling oil prices and Western sanctions imposed on Russia for its role in the Ukraine crisis have spurred inflation and pushed the ruble to record lows late last year.
The Russian currency is still trading nearly 50 percent lower versus the greenback compared to the start of 2014, threatening Russia's financial stability.
The Central Bank last increased its key rate in an emergency move on Dec. 16 to an unprecedented level of 17 percent, a measure aimed at curbing the ruble's slide and bringing down above-target inflation.
"This decision has helped to stabilize the foreign exchange market, but inflation expectations remain high," the Central Bank's press service said in a statement, citing the bank's governor, Elvira Nabiullina.
The bank's next scheduled rate meeting is on Jan. 30.
"The board … will decide on the level of the rate based on an assessment of risks to inflation, the current state of the economy and prospects for its development," the bank said. 

Net capital outflows from Russia were at their highest level ever in 2014.
Net outflows by companies and banks reached $151.5 billion in 2014, more than two times as much as in 2013, according to the Russian Central Bank. The last time the level of outflows was this high was during the global financial crisis in 2008, when it reached $133.6 billion.
The fourth quarter in particular saw a huge spike. Net outflows surged up to $72.9 billion, from $16.9 billion in the previous quarter, following the drop in oil prices and the ruble's plunge.
In dire circumstances like this, a country may choose to implement capital controls in an attempt to curb outflows, and people are worried that Russia is getting to that point.
“We now think that Russia is willing to tap more intensively one of the dearest reserves it still has: central bank credibility,” Wolf-Fabian Hungerland, an economist at Berenberg Bank in Hamburg, told Bloomberg. “Should capital outflows not decline, the last option effective in the eyes of the central bank would be capital controls.”
"Russia in 2006 became the only one of the biggest emerging economies to allow unrestricted flows of money across borders," Bloomberg reports. "Reintroducing such limits would undermine the country’s monetary-policy achievements, [central bank head Elvira] Nabiullina said in October."
But so far, officials have repeatedly insisted that Russia has no plans to limit capital movement.
Russia is currently on the edge of its first recession since 2009. Its economy took a serious beating following the sanctions imposed by the EU and US over the country's invasion of Ukraine, along with plunging oil prices worldwide.
Additionally, the ruble was one of the worst-performing currencies in 2014. Over the course of the year, the ruble fell approximately 40% against the dollar. It is currently trading at around 65 rubles per dollar.

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Russian Central Bank Reshuffle Sign of New Approach to Ruble Crisis

The appointment of a new deputy governor to the Central Bank has raised the prospect of shifts in Russian monetary policy as the country continues to grapple with a currency crisis that saw the ruble lose a third of its value against the U.S. dollar over the last two months. 
Dmitry Tulin, a technocrat with two spells working at the Central Bank already under his belt, will take over responsibility for monetary policy at the regulator from Deputy Governor Ksenia Yudayeva, who sees her role trimmed to macroeconomic forecasting. 
In the face of intense pressure over the ruble's dramatic plunge and a gathering economic crisis, the appointment has again raised questions about the Central Bank's ability to avoid politically driven decision-making. 
"There will be changes [in monetary policy], this appointment is not a coincidence," Kremlin economic aide Andrei Belousov told journalists Thursday, news agency RIA Novosti reported. 

Yudayeva Sidelined?

U.S.-educated Yudayeva, who joined the Central Bank less than 18 months ago, has been at the forefront of decisions about Russian monetary policy and was criticized last year amid regulatory inactivity as the ruble crashed to briefly become the world's worst performing currency. 
Following the announcement of Tulin's appointment Wednesday, Yudayeva said she will answer for financial stability and macroeconomic forecasting at the bank: responsibilities she previously held alongside her monetary policy position. 
Yudayeva's diminished role "is a statement that she didn't do well in the job," said Vladimir Tikhomirov, chief economist at BCS Financial Group in Moscow. 

Musical Chairs

The comments by Belousov, advisor to President Vladimir Putin, that the appointment indicated a new approach from the Central Bank directly contradicted an earlier statement by Central Bank governor Elvira Nabiullina that there were no changes in the offing. 
"I particularly want to emphasize that we are preserving the strategic and tactical benchmarks of monetary policy," Nabiullina said Wednesday, according to the Russian RBC news website. 
Tulin's appointment brings the number of deputy governors at the Central Bank to five. 
Both Yudayeva and Tulin represented the reshuffle as a mere practical division of responsibilities that would create a more effective regulator, according to Russian media reports. 

Old-Hand Tulin 

Few surprises can be expected from Tulin, who enjoys a reputation as a highly experienced operator in both the commercial banking sphere and government regulation bodies. 
He worked for 10 years in the Soviet Central Bank and served as deputy governor at post-Soviet Central Bank between 1991 and 1994 and again between 2004 and 2006. 
Tulin has also worked at the International Monetary Fund, accounting firm Deloitte and Vneshtorgbank, the former name for VTB, Russia's second-largest bank. 
In 2010 and 2011, Tulin wrote a series of articles for Russian news site that are peppered with quotes from literary figures including British author Oscar Wilde and French poet Paul Valery. 
The pieces do not shy away from trenchant criticism: One article from September 2011 accuses VTB of massaging its financial results while an article from January 2011 censures the imprisonment of tycoon and Putin critic Mikhail Khodorkovsky. 

End of an Era?

Some experts warned that expectations of monetary policy changes in the wake of Tulin's appointment could further destabilize Russian markets. 
The ruble fell almost 5 percent Thursday to 66.1 versus U.S. dollar after reaching a high of 63.09. It later pared losses to trade at about 65 agains the greenback in the early evening. 
Others said that the staffing changes were the logical end of an era. 
"After such a shift in the economic landscape … as what happened last autumn some sort of change was essential," Konstantin Sonin, an economics professor at the Higher School of Economics, wrote on his blog Wednesday. "Simply because the 'first cycle' of the life and policies of Nabiullina's Central Bank had come to an end."
SCOW, January 13. /TASS/. The ruble’s depreciation against the US dollar has affected the life of 48% of Russian citizens, according to a poll released by the Central Bank of Russia on Tuesday.
As many as 2,000 respondents from 43 Russian regions covered by the poll spoke about rising retail prices of goods and services, the need of considerable spending cuts and about their depreciating savings.
Under the poll, 57% of the respondents believe that the ruble’s further possible decline will continue negatively affecting their life.
“Actually all the indicators characterizing Russians’ borrowing and saving guidelines have deteriorated sharply,” the Central Bank of Russia said in its survey.
Specifically, the share of Russians considering the current period as bad for purchases on credit has risen to its maximum level of 48% for the past four years.
The survey has also registered a sharp increase in the number of Russians who consider the current situation as unfavorable for savings.
The share of people trusting the ruble as a currency for savings has fallen to its minimum level on record (62%), the survey showed.
The share of people who believe that it is best of all to keep money on bank accounts continues falling gradually. The number of people who say they have savings has also declined, the survey said.
The Russian Central Bank conducted its survey on December 8-15, 2014.

Russian inflation quickened to the fastest in more than five years after the country’s worst currency crisis since 1998 stoked price growth. 
Consumer prices rose 11.4 percent in December from a year earlier, compared with 9.1 percent in November, the Federal Statistics Service in Moscow said today in an e-mailed statement, citing preliminary data. That exceeded the median estimate of 14 economists in a Bloomberg survey for 11.2 percent. Prices jumped 2.6 percent from the previous month. 
Economic challenges are mounting for President Vladimir Putin, whose annexation of Crimea from Ukraine in March prompted U.S. and European sanctions before a plunge in oil prices sent the ruble into a tailspin. The inflation spike is roiling consumer demand as retailers including Apple Inc., Renault SA and McDonald’s Corp. have been raising prices to offset the drop in the value of their sales in rubles. 
“People’s purchasing power will slide further, monetary policy will become tighter and recession deeper in 2015,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail before the data release. “We expect inflation to peak at 15 percent during the first quarter.” 
Russia’s currency lost 44 percent this year, the second-most in the world after Ukraine’s hryvnia, according to data compiled by Bloomberg. 

Inflation, Economy 

Russia is sinking into stagflation as a recession looms and price growth soars. The economy of the world’s largest energy exporter may contract about 4 percent in 2015 if oil prices stay at $60 a barrel, according to Finance Minister Anton Siluanov. 
The government is considering a freeze on some food prices and may use its stockpiles of buckwheat, sugar, meat and grains to help meet demand, Andrei Tsiganov, a deputy head of the Federal Anti-Monopoly Service, said last week in Moscow. 
The central bank has raised its key rate six times this year, including an emergency increase to 17 percent on Dec. 16, and used its reserves to support the ruble. The risk of Russia sliding into recession is at a record high, according to a Bloomberg survey of economists, who forecast the country won’t see growth for four consecutive quarters. 
Policy makers initially targeted price growth at 5 percent this year. The Bank of Russia’s medium-term inflation target of 4 percent is achievable by the end of 2017, central bank First Deputy Governor Ksenia Yudaeva said this month. 

Russia’s international reserves hit new 5-year low at $388.5 bln as of Dec 26

 December 31, 15:41 UTC+3
Russia’s international reserves fell by $10.4 billion over a week
Russian C© Pavel Smertin/TASS 
MOSCOW, December 31. /TASS/. Russia’s foreign exchange and gold reserves fell 2.6% to $388.5 billion in the period from December 19 through December 26, the central bank said in a statement Wednesday.
In 2013, the foreign exchange and gold reserves fell 5% to $510 billion.
Russia’s international reserves have fallen below the $400 billion mark for the first time since August 2009.
During the crisis of 2008-2009, the country’s international reserves were seen to plummet to as low as $376 billion (mid-March 2009). 
Russia’s international reserves are highly liquid foreign assets managed by the Central Bank of Russia. They comprise foreign currency, Special Drawing Rights (SDRs), a reserve position in the International Monetary Fund and monetary gold.

(dec 26 Reuters) - Slumping oil prices have put Russia's economy on course for a sharp recession and double-digit inflation next year, government ministers said on Friday, as authorities scaled up a bailout for the first bank to succumb to this month's ruble crisis.
The economy is slowing sharply as Western sanctions over the Ukraine crisis deter foreign investment and spur capital flight, and as a slump in oil prices severely reduces Russia's export revenues and pummels the ruble.
The government has taken steps to support key banks and address the deepening currency crisis in the past week, including a sharp and unexpected interest rate hike, but analysts are pessimistic on the outlook for both the economy and the ruble

Finance Minister Anton Siluanov told journalists on Friday the economy could shrink by 4 percent in 2015, its first contraction since 2009, if oil prices averaged their current level of $60 a barrel.
Siluanov also said the country would run a budget deficit of more than 3 percent next year if the oil price did not rise.
"Next year we will, without doubt, have to bring the Reserve Fund into play," he said, referring to one of Russia's two rainy-day funds intended to support the economy at times of crisis.
Crude prices have almost halved from their June peak amid a global glut and a decision by producer group OPEC not to cut output. Saudi Arabia said on Friday it was prepared to withstand a prolonged period of low prices.
"We need to have our budget break even at $70 per barrel by 2017," said Siluanov.
Russia's government imposed informal capital controls this week, including orders to large state-controlled oil and gas exporters Gazprom and Rosneft to sell some of their dollar revenues to shore up the ruble.
Russians have kept a wary eye on the exchange rate since the collapse of the Soviet Union. Hyper-inflation wiped out their savings over several years in the early 1990s and the ruble collapsed again in 1998.
The ruble's latest fall will inevitably lead to higher inflation next year, which after years of stability threatens President Vladimir Putin's reputation for ensuring Russia's prosperity.
"The inflation forecast is tough, high. We forecast the level of 10 percent at the end of the year (2015)," Russian Economy Minister Alexei Ulyukayev said on Friday.
Inflation would remain in double digits throughout 2015, peaking at the end of the first quarter or in the second quarter, he added.
The Russian currency slipped on Friday after hitting its strongest levels in more than three weeks earlier in the day. 
The ruble traded at 53.9 per dollar during the evening, a sharp rebound from its recent all-time lows of 80 but still far weaker than the 30-35 range it was trading at in the first half of 2014.
"If oil goes down to $50 (per barrel)... I don't think our authorities will be able to artificially maintain the (ruble) rate even with higher sales by exporters," said the head of treasury at a major Russian bank, who asked not to be named because he is not authorized to speak to media.
On Friday, Russian authorities also significantly scaled up rescue funds for Trust Bank, saying they would provide up to $2.4 billion in loans to bail out the mid-sized lender, the first bank to fall victim to the crisis.
The falling ruble has prompted panic buying of foreign currency in Russia and a spike in deposit withdrawals, heaping pressure on a vulnerable banking sector whose access to international capital markets has already been restricted by Western sanctions.
Siluanov said on Friday that authorities would provide additional capital to the country's second-largest bank, VTB, and fellow state lender Gazprombank. 
VTB could receive 250 billion rubles and Gazprombank 70 billion rubles to help fund investment projects, including those planned by Russian Railways, he said.
It was not clear whether this support would be in addition to the 1 trillion ruble capital boost the banking sector is set to receive as part of legislation recently approved by parliament.
Credit agency Standard & Poor's said this week it could downgrade Russia's rating to junk as soon as January due to a rapid deterioration in "monetary flexibility" in the country.
"Practically this (a downgrade) may mean the increase of capital outflow from Russia, which would be necessary to replace with instruments we have," Ulyukayev said.
Russia may repurchase corporate bond issues, especially denominated in foreign currency, if needed, he added.

Meanwhile Russian gold and forex reserves have fallen to their lowest levels since 2009 as the central bank has spent billions to prop up the currency. Last week, reserves dropped by as much as $15.7 billion to below $400 billion, down from over $510 billion at the start of the year.

sia Finance Minister: 2014 Inflation Seen at 11.5 Pct - Interfax

By Dow Jones Business News,  

MOSCOW--Russia's consumer inflation will exceed earlier expectations but there is no need to keep interest rates at high levels for long time, Finance Minister Anton Siluanov said Thursday, Interfax news agency reported.

In an attempt to save the ruble from falling and to tame inflation, the central bank jacked up the key interest rate by 6.5 percentage points to 17% last week. The move sent interbank overnight lending rates toward 25% from around 11% earlier this month.
Mr. Siluanov said the government together with the central bank will work on ways to lower lending rates for key sectors and companies in the economy.

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