By
Scott Rose
Russia’s central bank refrained from
cutting interest rates as Europe’s debt crisis exacerbates a
cash shortage in the economy, putting pressure on policy makers
to keep a grip on capital outflows.
The central bank left the refinancing rate at 8.25 percent
after two increases this year, as predicted by all 24 economists
in a Bloomberg survey, Bank Rossii said today in Moscow. Tighter
lending conditions and a liquidity shortfall will likely
“remain for the medium term,” the bank said.
Lenders in eastern Europe may face a credit squeeze as
banks further west withdraw cash from the region to cope with
the European debt crisis, Christine Lagarde, the International
Monetary Fund’s managing director, said Nov. 7 in Moscow. The
Russian regulator has signaled it may limit operations between
domestic lenders and foreign banks.
“Policy makers are becoming increasingly worried about a
liquidity squeeze in the banking sector,” Neil Shearing, a
London-based senior emerging-markets analyst at Capital
Economics Ltd., said by e-mail. “The problem for the central
bank is that cutting interest rates significantly would risk
stoking capital outflows, thus intensifying the liquidity
squeeze facing banks.”
The government of Prime Minister Vladimir Putin, who plans
to return to the Kremlin next year, has been battling to staunch
capital flight that may reach $70 billion this year, compared
with a previous forecast for $36 billion of outflows, according
to the central bank.
‘Very Concerned’
Bank Rossii is “very concerned” about capital outflows
that hit $64 billion in the first 10 months, Chairman Sergey Ignatiev said last week.
The ruble kept declines against the dollar, depreciating
0.5 percent to 31.6150 at 6:18 p.m. in Moscow, heading for its
weakest closing level since Oct. 7. The Russian currency has
fallen 2.5 percent against the dollar this week, bringing its
loss since the end of July to almost 13 percent.
The ruble’s depreciation since August may fan price growth
next month as commodity exports power economic growth above 4
percent, which “isn’t bad,” Ignatiev has said. Inflation was 7
percent on Nov. 21 from a year earlier, compared with 7.2
percent at the end of October, according to the central bank.
Lowest Since 1991
The world’s largest energy exporter is trying to cap
inflation at 7 percent, which would be the lowest year-end level
since the Soviet Union collapsed in 1991. Putin is seeking to
keep price growth from eroding purchasing power before
parliamentary elections next month and presidential polls in
March.
The central bank signaled today that a shortage of cash in
the banking system will probably continue.
Russian units of foreign banks including UniCredit SpA (UCG) have
started lending excess cash to their parents since the middle of
the year amid the euro region’s turmoil, using “central bank
liquidity” and funds from their Russian operations, Deputy
Economy Minister Andrei Klepach said Oct. 27.
Bond yields in Italy and Spain have soared on concern their
debt levels may force them to join Greece, Ireland and Portugal
in seeking international aid. Italy’s 10-year notes yielded 7.11
percent yesterday after rising 47 basis points this week.
Italian Debt Sale
Italy sold 8 billion euros of six-month Treasury bills, the
maximum target. The Rome-based Treasury sold the 183-day bills
to yield 6.504 percent, up from 3.535 percent at the last
auction on Oct. 26. Demand was 1.47 times the amount on offer,
compared with 1.57 times last month. The country’s bonds
extended their decline after the sale.
Earlier, Spanish two-year notes slid, pushing the yield to
more than 6 percent for the first time since the euro was
created in 1999. The rate climbed as high as 6.12 percent and
was at 6.06 percent.
German two-year debt rose for the first time in three days
as Belgium’s de Tijd newspaper reported European Central Bank
Governing Council member Luc Coene as saying the central bank
may cut interest rates given the current situation.
The cost of insuring against default on European financial-
company debt rose to a record, according to traders of credit-
default swaps.
Of the 10 Russian banks with the most foreign transactions,
seven are subsidiaries of Western banks, Alexander Vinogradov,
an official at the central bank’s regulatory and oversight
department, told reporters in Moscow yesterday.
‘Drying Up’
“We’re concerned about that from the liquidity
standpoint,” he said, adding that the operations are “drying
up” Russia’s money market.
The central bank has been monitoring foreign lenders’
subsidiaries since a credit squeeze that began in late 2008, he
said. Among the biggest foreign lenders with local subsidiaries
are Societe General SA through its OAO Rosbank (ROSB) unit, UniCredit,
Raiffeisen Bank International AG (RBI) and Citigroup Inc. (C)
Foreign banks “facilitated” capital flight three years
ago during the country’s record economic slump, Putin has said.
Bank Rossii met with the subsidiaries of western European
banks over the past few weeks to order them to limit lending to
support their parent companies in dealing with Europe’s debt
crisis, Kommersant reported today. Vladimir Lavrov, a central
bank spokesman, said he had no information on the matter.
‘Direct Indicator’
Russia’s largest deposit-taking banks are now paying
households an average of 9 percent on their top ruble deposits,
up from 7.88 percent in mid-November, according to central bank
data. The rising rates paid by lenders are a “direct indicator
that banks have a problem with liquidity now,” according to
Konstantin Nemnov, a portfolio manager at TKB BNP Paribas
Investment Partners who helps manage 22 billion rubles in debt.
“If there were more liquidity, it would clearly assist our
work,” he said today by telephone from St. Petersburg. “The
negative pressure on interest rates will continue regardless
because of the capital outflows.”
Budget spending at the end of the year, traditionally a
source of ruble weakening, is unlikely to ease the liquidity
crunch, Clemens Grafe, chief economist at Goldman Sachs in
Moscow, said in a telephone interview today. He forecasts no
lending-rate changes until the second-quarter of 2012.
The budget surplus widened to 3.2 percent of economic
output in the year through October, or 1.4 trillion rubles,
according to Finance Ministry data. More than 60 percent of the
amount, or 896 billion rubles, has already been placed with
Russian banks through the ministry’s deposit auctions, according
to Bank Rossii data.
“The budget can basically finance its spending out of the
deposits that they already hold with commercial banks, which
they didn’t have in the past,” he said. A “healthy” surge in
repo demand over the past two months is being driven by the
budget policy and also “there have been big banks that
overcommitted themselves on the lending front.”
To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net
To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net
