Russia 090417 Basic Political Developments

National Economic Trends Russian monetary base up 1.7% in week to 2.7 bln

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National Economic Trends

Russian monetary base up 1.7% in week to $112.7 bln

MOSCOW, April 17 (RIA Novosti) - Russia's Central Bank said on Friday the country's narrowly defined money supply (M1) was 3 trillion 772 billion rubles ($112.7 billion at the current exchange rate) as of April 13, up by 61.9 billion rubles ($1.9 billion) in the week since April 6.

According to the Bank, M1 money supply consists of the currency issued by the bank, including cash in vaults of credit institutions, and required reserves balances on ruble deposits with the Central Bank.

Russian economy to start recovering only in 2011

The Russian economy will begin to recover in 2011, Arkady Dvorkovich, an assistant to the Russian president said at a forum of the Russian Union of Industrialists and Entrepreneurs. The year 2011 will become the year of the economic rise in the country. However, it may take Russia a longer time if the government does not conduct adequate reforms of the bank system.

“If Russian banks do not give loans to businesses on reasonable conditions, the crisis in the country will last longer,” the official said.

He pointed out several problems, which Russia has in the crediting field. One of them is connected with the weak and underdeveloped mechanism of crediting.

There are no tools to supervise the targeted use of the funds. “The problems need to be solved in a complex. Everything should be solved in several months,” the official said.

The financial burden on the Russian business is not supposed to increase from 2011 for it will reduce the competitive ability of the Russian economy, Dvorkovich said.

“I think that a reduction of the value added tax will take place in 2011, but it is my personal opinion only,” the official said. The Finance Ministry will have the decisive word on the matter.

As Pravda.Ru previously reported Russia's economy will contract by more than 2 percent this year under the weight of the financial crisis and lower commodity prices.

"The GDP forecast has been downgraded to minus 2.2 percent," Andrei Klepach was quoted saying by the agency.

Klepach's estimate was the first official announcement of a sharp fall in the Russian economic growth, with the government previously predicting only a 0.2 percent contraction for 2009.

The minister said the forecast had been revised due to increasing investment outflows, which he estimated at 14 percent this year.

Russia 's stock markets reacted with steep drops in late trading. Both the RTS, Russia's benchmark index, and the larger MICEX exchange shed 9.4 percent by the close of the day. The national currency fell 2 percent against a dollar-euro basket.

But even after the latest forecast revisions, the government is still more optimistic than most analysts about the year ahead.

Russian min sees positive trends despite poor econ indicators

MOSCOW, Apr 16 (Prime-Tass) -- Economic Development Minister Elvira Nabiullina said Thursday that she saw some positive trends in the Russian economy despite falling industrial output and gross domestic product (GDP), ITAR-TASS reported.

“We’ve had falling indicators of industrial output and GDP, but economic trends in March went in various directions,” she said during a meeting with Prime Minister Vladimir Putin.

Nabiullina cited growth in food production and car output as evidence of improving conditions. She said she hoped that government support measures, including subsidies for car loans, would help increase auto production.

Industrial output in Russia fell 14.3% on the year in January-March. In March, it decreased 13.7% on the year, but increased 11.1% on the month. Russia’s GDP fell over 7% in January-March.

Optimistic CBR

VTB Capital

April 16, 2009

The CBR is becoming increasingly optimistic on net private capital outflows in 2009. This is consistent with the Prime Minister's recent announcement on corporate debt restructuring. The monetary authorities have stepped up their FX interventions, providing liquidity to banks. But inflationary pressures remain low as unsecured loans shrink. The CBR sees the CPI below 13% YoY in 2H09 and might cut rates in April.

First Deputy Chairman of the CBR Alexey Ulyukayev announced today that net private capital outflows in 2009 might be less than the official forecast of USD 70bn. The key reasons for this are corporate external debt restructuring and Eurobond buy-backs.

The CBR's optimistic view on net private capital outflows this year is consistent with our assumption that corporate sector debt redemptions might be lower than the scheduled USD 116bn. Prime Minister Vladimir Putin recently mentioned that corporates repaid or restructured USD 174bn, which implies that the private sector could have rolled over some USD 98bn of external liabilities.

According to Ulyukayev, in February-April the CBR bought about USD 8bn of FX and printed some RUB 300bn, supporting banking system liquidity. However, we emphasise that the CBR decreased the total of outstanding unsecured loans to banks by RUB 400bn during the same period, limiting inflationary pressures.

Ulyukayev also mentioned that inflation was likely to subside to below 13% YoY in 2H09 and, hence, allow the CBR to cut rates. We think the regulator might lower the refinancing and repo rates by the end of April unless the global macro background deteriorates sharply.

However, even a series of rate cuts might not be enough to spur credit growth. Ulyukayev's words also chime with our view that the CBR follows the market and would be very careful in lowering rates as this might bring down deposit rates and create additional funding problems for banks.

CBR guides for current account surplus above $40 bln, expects to cut interest rates

April 16, 2009

On April 15 Alexei Ulyukaev indicated that Russia's current account surplus could exceed $40 bln this year and that the CBR may consider cutting interest rates. 

The dramatic drop in imports and recent recovery in oil prices have made the CBR more optimistic about Russia's chances of running a current account surplus this year. A surplus would boost the CBR's reserves, as well as helping it reduce liquidity support to the banking system and cut interest rates.

However, a surplus would not solve the problem of short maturity, which is the main obstacle to lending growth. Corporate borrowers are not helped by cheaper 3-6 month money from the CBR, since they cannot finance their projects with such short loan maturities. Therefore, as long as the Russian economy suffers from a lack of long-term private savings, we do not expect the CBR to be able to use interest rates to regulate banking sector growth.

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