Euroclear Link May Generate Ruble Demand ‘Wave,’ Citigroup Says

Russia to cut budget deficit to 2.9 pct of GDP in 2013

SEOUL, November 11 (RIA Novosti) - Russia is going to halve its budget deficit to 2.9 percent of GDP by 2013 in line with agreements reached at the G20 Group summit in South Korea, a Russian delegation source said on Thursday.

"The federal budget deficit is expected to stay within 3.6 percent of GDP in 2011, 3.1 percent of GDP in 2012 and 2.9 percent of GDP in 2013," the source told RIA Novosti.

The deficit could be partly cut through the government's exit from stimulus measures, the source said.

"At the same time, some stimulus measures will be continued, for example, state support on the labor market, interest rate subsidizing and measures to support the automobile industry, aerospace and other sectors," he said.

The government's program to raise the efficiency of budget spending until 2012 could also help reduce the budget deficit, the source said.

http://www.rbcnews.com/free/20101111115527.shtml

      RBC, 11.11.2010, Moscow 11:55:27.The Federal Agency for State Property Management and Merrill Lynch Securities, Merrill Lynch's subsidiary, have signed an agency agreement on the organization of the sale of a 10- percent stake in VTB, the agency reported to RBC today.

      Merrill Lynch Securities must provide an assessment of the company's market price of shares (by hiring an independent appraiser) in the near future and provide the regulator with suggestions regarding buyers, the price for shares and other terms of the share purchase agreement.

      As reported earlier, Russian Prime Minister Vladimir Putin signed a government decree on November 2 appointing Merrill Lynch Securities as an agent for the sale of 10 percent of VTB's shares as part of the lending institution's privatization.

Trade Surplus Widens

The country’s trade surplus widened to $10.4 billion in September from a revised $8 billion a month earlier as imports fell for the first time this year, the Central Bank said Wednesday.

Imports declined to $23.55 billion from $23.82 billion in August, the regulator said on its web site. Exports rose to $33.96 billion from $31.78 billion.

(Bloomberg)

September Trade Balance: a Short Respite, Yet No Clue to RUB

http://www.businessneweurope.eu/dispatch_text13579

VTB Capital

According to the CBR, Russia's monthly external trade balance rebounded to USD 10.4bn in October from USD 8.3bn in September.

Monthly exports jumped 6% MoM to USD 34bn and their annual growth even slightly accelerated to 18.1% YoY from 17.5% YoY. This was the first rebound in exports growth rate since it started falling from the hefty 64.4% YoY in February.

Monthly imports edged lower to USD 23.6 (1% MoM down) in September. Annual growth rate for imports dropped to 33.7% YoY from August's exceptional 53.2% YoY. At the same time, if we exclude the one-off effect of regulatory changes in the pharmaceutical sector, which pushed imports higher in August, September's data would reveal the acceleration in imports growth.

The September trade balance data does not help to explain the rouble's performance that month. With the USD 10.4bn trade balance, the current account surplus should have stood around USD 4-5bn, only marginally lower than it was in May-July. Hence, the rouble's weakness could have been only due to a large capital outflow, which prompted the CBR to sell USD 1.4bn to curb the rouble's depreciation.

With higher oil prices in October we think the trade balance that month was similar to the September figure even if imports continued rising. However, the capital outflow was likely even bigger as it prompted the CBR to sell USD 3.8bn to support the currency.

We expect this two-month capital outflow to shrink (either due to portfolio inflows in response to the new round of QE or on more active external borrowings by Russian banks) and reiterate our 29.30 USD/RUB forecast for the end of the year.

Aleksandra Evtifyeva

http://www.businessneweurope.eu/dispatch_text13579

Alfa Bank
November 11, 2010

According to Rosstat, the first week of November saw CPI accelerate to 0.2% w/w after four weeks at 0.1% w/w. YTD consumer inflation is now 7.0%, in line with our FY10 forecast of 8.6%.

Although we noticed a slight acceleration in prices for dairy and bread a week ago, it was not strong enough then to increase overall weekly price growth. Now, however, this growth has intensified and affects a wider range of products, including sugar, vegetables and poultry. It looks as though consumer prices are being affected by the ruble exchange rate depreciation to the basket of 5% since September driven primarily by the 9% weakening to the euro, the key currency for Russia's imports. We expect CPI will grow 0.8% m/m in November followed by price growth of 0.9%-1.0% in December, which will bring the annual figure to 8.6% y/y in 2010.

Natalia Orlova

http://www.businessneweurope.eu/dispatch_text13579

VTB Capital
November 11, 2010

News: The Budget Committee of the State Duma yesterday recommended that the earlier government proposal to increase MET for oil and gas be approved at the first reading. According to the initiative, the base rate for oil MET is due to be increased 6.4% in 2012 and 5.4% in 2013. Meanwhile, the government intends to increase gas MET 61% in 2011, 5.9% in 2012 and 5.5% in 2013.

Our View: The decision is not final yet, but we believe the proposed reform is most likely to be approved, considering we have not heard any major arguments against the increase from the parties involved. Meanwhile, the proposed changes reflect only part of the reform which could also involve a partial reduction in export duties and the introduction of excess profit tax, as was proposed in October. The resulting effect would be largely neutral, although the final layout of the reform would only become clear in 2011. The increase in oil MET in 2012 would hit the profitability of the Russian oil majors by some $0.9/bbl (8%).

Meanwhile, as we estimated recently (see our Energy Watch: New Taxation at a Glance, of 3 November), approximately the same margin would be accrued as a result of introducing the proposed export duty cuts and profit-based taxation. This supports our general vision that the government is aiming to diversify taxation, rather than shift the effective tax rate for the oil industry. The gas taxation story is a bit different. The proposed change would increase the tax burden on the gas industry by some USD 1.8bn, with an effect on Gazprom's EBITDA of around 3%, and NOVATEK's of around 6%. As we wrote earlier, the tax sector is potentially more threatened by the taxation reform, since gas margins in Russia would be getting unjustifiably rich along with domestic price liberalisation. However, the currently proposed hike is still marginal, and largely expected, in our view.

Lev Snykov

Ministry of Finance proposes consumer finance draft law

http://www.businessneweurope.eu/dispatch_text13579

VTB Capital

News: Kommersant reported today that the Russian Ministry of Finance had proposed a draft law regulating consumer finance. According to the paper, the key changes will include the following:

- Within a week after a loan becomes overdue, the bank will have to notify the borrower by a registered letter.

- Bank will not be allowed to distribute banking cards by mail unless they cannot verify that the customer has personally or through his/her representative received the card.

- It will be prohibited to include additional services (such as insurance) into the credit agreement.

Our View: The draft law, if approved, will have a negative effect on the consumer finance sector, both increasing its costs and decreasing income by removing some fees and commissions. However, we note that state officials have been talking about the law since 2004. The timing of the draft law approval is uncertain. Moreover, we believe the draft law will be amended before approval, and the final provisions will have a significantly lesser effect on consumer banks.

Roman Luchkovsky