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Claus Vistesen and I also have a number of country briefings and study papers available for download in PDF format. The latest are:

Bank Rossii Eases Further As Russia's Economy Contracts At A Record Rate

The ECB's Balance Sheet At A Glance.

Friday, September 5, 2008

Russian Inflation Accelerates Slightly In August And The Central Bank Intervenes Again

Russian inflation accelerated in August and remained close to its fastest pace in more than five years as food costs continued to rise. The Russian inflation rate rose to 15 percent from 14.7 percent in July, according to data from the Moscow-based Federal Statistics Service earlier today. Month on month, prices were up 0.4 percent, after rising 0.5 percent in July.

The central bank forecast slowing monthly price growth or a possible decline in August. Monthly inflation increased ``unexpectedly'' on meat and dairy costs, Alexei Ulyukayev, the central bank's first deputy chairman said in response. Food prices increased an annual 22 percent in August, including a 45 percent gain in pasta and a 33 percent rise in dairy costs.

Stocks Fall As The Central Bank Intervenes To Shore Up The Ruble

Russian stocks fell again this week and the cost of insuring government bonds from default rose to its highest level in four years following central bank intervention to shore up the ruble. Bank Rossii said yesterday that it had intervened in currency markets again, buying rubles using foreign currency reserves, after withdrawals by investors sent Russia's currency to its lowest level in almost a year. Russia's RTS Index dropped 3.8 percent on Friday, capping its worst week since May 2006, and credit-default swaps on the government's debt rose 14 basis points to 166, the highest since November 2004.

The ruble, which is kept within a trading band against a currency basket to limit the impact of fluctuations on the competitiveness of Russian exports, fell to as low as 25.5196 per dollar at one point on Friday, the weakest level since Sept. 11, 2007. The central bank in Moscow responded by selling a ``significant'' amount of foreign currency to prop up the ruble, First Deputy Chairman Alexei Ulyukayev said. ``The ruble had got to the higher end of the trading band, so it was reasonable,'' he told reporters in Sochi, declining to give the exact amount. The bank sold about $4.5 billion of foreign reserves yesterday, according to an estimate by Mikhail Galkin, a fixed-income analyst at MDM Bank in Moscow. However, with over $500 billion in reserves at this point, it is hard to see Russian reserves coming under any real pressure. The Achilles heal here as far as I can see is the combination of strong domestic inflation and falling oil and commodity prices. The ruble was 0.1 percent lower on the day versus the dollar, closing at 25.4788.

Investors have now pulled a net $4.6 billion out of Russia since the invasion of Georgia last month, according to central bank data, contributing to the worst quarterly slump in stocks since the sovereign debt default a decade ago. Declining crude oil prices are also adding to Russia's current woes.

It would seem that the central bank is buying more rubles at this point than at any time in recent years, quite possibly the most since 1998. The RTS stock index, which has been up an annual average 51 percent since 2001, has now fallen 36 percent since July 1, the worst drop since the government defaulted on $40 billion of debt in August 1998.

The dollar-denominated RTS index dropped to 1,469.15, bringing its weekly slide to 11 percent. The ruble- denominated Micex Index sank 3.7 percent to 1,234.71, the lowest level since June 2006. The Georgia conflict has only been the most recent in a long line of issues which have been giving investors concern about the future evolution of Russia's financial and economic system. BP and its billionaire Russian partners are currently wrestling for control of TNK-BP, Russia's third-biggest oil producer. Two years ago, Royal Dutch Shell, Europe's second-biggest oil company, ceded control of its biggest operation in Russia - the $22 billion Sakhalin-2 oil and gas project - to OAO Gazprom, Russia's largest company.

Five-year credit-default swaps on Gazprom rose 13.5 basis points to 298, the highest level since March, and shares in Gazprom tumbled 3.7 percent to 220.72 rubles by the Moscow close in Moscow, after being down as much as 8.3 percent at one point. OAO GMK Norilsk Nickel, Russia's biggest mining company, slipped as much as 15.2 percent, before closing 9.6 percent down at 3,834.09 rubles. Oil has fallen 8 percent this week, the most in almost two months, with crude for October delivery standing at $105.71 on the New York Mercantile Exchange on Friday. Nickel dropped $580 to $18,625 a metric ton.


Anonymous said...

Where did you get the central bank data on capital flight? I can't find it anywhere.

Edward Hugh said...

Hi Noel,

Nice to see you.

"Where did you get the central bank data on capital flight?"

Well the simple answer is Bloomberg. Run a search for Russia, and work you way back, they have lots of interesting material. The more complicated answer is you need to go to the central bank. This is the page which you may find most useful. Unfortunately, as you will see, it only runs to July. Here are the foreign exchange reserves, as you will see they peaked in the week ending 8 August. But this is an aggregate number. Russia still has positive inflows from the oil remember, and these are clocking up by the week. So you really need to find a breakdown. If you keep following the first link over the months you should see the pattern.

I didn't know you had an interest in Russia. Or maybe you simply have an interest in everything. I'm afraid, just one more time, I am practising my obsession: this is all going to be about demography, even this very strange political evolution we are seeing. Rise and decline, I'm afraid.

Edward Hugh said...

This one today is quite interesting:

Russia's government will offer banks 220 billion rubles ($8.7 billion) in unspent budget funds to help meet demand for corporate loans, RIA Novosti reported. The government today will auction off as much as 60 billion rubles of five-week loans at an annual rate of 8 percent, the state-run news service reported, citing the Finance Ministry. The ministry will offer as much as 160 billion rubles of one-week loans at a rate of 7.75 percent tomorrow, RIA said. This is the first time Russia has held two auctions in one week since starting the program in April, according to RIA.

which follows this, I think:

OAO Sberbank, Russia's biggest bank, increased the interest rates it charges for corporate loans after its own borrowing costs increased, Kommersant reported, citing unidentified customers of the state-run bank. Moscow-based Sberbank, which has about 40 percent of Russia's corporate lending market, raised rates by 1 percentage point to 3 percentage points, the newspaper reported. The central bank raised its refinancing rate by 25 basis points four times between February and July, when it reached 11 percent a year, Kommersant said. Russian companies owed Russian banks 8.8 trillion rubles ($347 billion) on July 1, the newspaper said.

They are evidently facing all kinds of liquidity related problems. In the short term they have the resources to handle them. In the longer term this isn't so clear.