Russia 110113 Basic Political Developments
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- Russian international reserves up $1.3 bln in week
- Russian food: too expensive
- Yields Sink to Four-Month Low to Emerging Europe: Russia Credit
National Economic TrendsRussia's internal debt soars in 2010 http://www.rbcnews.com/free/20110113114609.shtml RBC, 13.01.2011, Moscow 11:46:09.The Russian government's domestic debt in securities climbed 34 percent in 2010 to RUB 2.462 trillion (approx. USD 81.98bn) as of January 1, 2011, the Finance Ministry said in a statement today. 10:36
World Bank lowers Russian 2011 GDP growth forecast to 4.2% (Part 2) http://www.interfax.com/news.asphttp://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aFxhsqpzhQQ0 Russia’s growth will accelerate to 4.2 percent this year from 3.8 percent in 2010, driven by strengthening domestic demand and higher prices for fuel and other commodities, the World Bank estimated. The economy will slow in 2012 because of a delayed overhaul of the economy and as the government gradually withdraws stimulus measures, the bank said.
MOSCOW. Jan 13 (Interfax) - Russia's international reserves grew $1.3 billion to $480.7 billion in the week to January 7, the Central Bank said on Thursday. The reserves stood at $479.4 billion on December 31. They consist of highly liquid financial assets at the disposal of the CB and Russian government, including foreign currency, monetary gold, special drawing rights, the reserve position at the IMF and other reserve assets. ak
Consumers in Russia are paying the price for the extreme heat wave and drought that devastated crops last year even as the country lies blanketed by snow. Food prices have surged since last summer – and have risen more than twice as quickly in 2010 that in 2009, setting back government plans to reduce inflation as Russia enters an election year. Poor Russians have been particularly hard hit with the price of the minimum food basket rising by more than one fifth in 2010 compared with just 0.7 per cent in 2009. The record breaking heat wave and drought that wiped out one third of the Russian grain harvest last year also withered vegetable and sugar crops setting back the country’s plans to become self-sufficient in food. Russian food prices rose by 12.9 per cent in 2010, as compared to 6.1 per cent over the same period in 2009, far outstripping consumer inflation of 8.8 per cent for the full year, according to Rosstat, the state statistics agency. The latest consumer prices data, released on Tuesday, marks a setback for the government which earlier set an 8.5 per cent inflation target for 2010 and had hoped to curb rising food prices in the run up to parliamentary and presidential elections in 2011 and 2012. Instead, the cost of the minimum food basket soared by 22.7 per cent in 2010 to reach Rbs 2,626 ($87.5) by the end of the year. Prices for basic products have spiralled upwards since the drought rising to 4.2 per cent in December alone. Russia’s central bank has pledged to take steps to keep prices under control, but warned on Tuesday of more misery ahead for Russian consumers with inflation slated to continue rising in the coming months. “Inflationary risks are high enough, it is likely that we will see some statistical rise in inflation,” Alexei Ulyukayev, first deputy chairman of the central bank told Prime Tass, the business news agency. Prices for potatoes and white cabbage, known as “political vegetables” since food shortages in the Soviet era, are likely to continue climbing until new crops arrive on the market in late spring, said Dmitry Rylko, director of the Institute of Agricultural Market Studies, a Moscow-based think tank. However, the price of bread, a barometer of social wellbeing in Russia, will likely remain flat as government grain stocks are released onto the market in the first quarter of 2010. Meanwhile, China has come to the rescue of Russian buckwheat lovers helping fill a shortfall in domestic supplies caused by the drought. Prices of the staple, popular in Russia both as a side dish to meat and as a breakfast porridge, have more than doubled since last August. So far the most officials have done in response has been to ban grain exports. Policy-makers in other emerging markets who also experiencing extreme food price increases – like India and Brazil – have resorted to similarly drastic measures. But the latest figures from Rosstat reveal Moscow has not done enough; this is sure have officials thinking hard about what to do next. Yields Sink to Four-Month Low to Emerging Europe: Russia Credithttp://www.businessweek.com/news/2011-01-12/yields-sink-to-four-month-low-to-emerging-europe-russia-credit.html January 12, 2011, 4:56 PM EST By Jason Webb Jan. 13 (Bloomberg) -- Yields on Russian government bonds are falling to the lowest level in almost four months compared with developing nations in Europe as rallying oil prices boost confidence in the world’s largest energy exporter. Russian yields dropped 20 basis points, or 0.2 percentage point, in the past month to an average of 4.94 percent, according to JPMorgan Chase & Co.’s EMBI+ Index. The yield is 21 basis points below the average of 5.15 percent for emerging European countries including Poland, Turkey and Ukraine. Russia’s yield was 10 basis points higher two months ago. Borrowing costs are declining for Prime Minister Vladimir Putin’s government after a 14 percent jump in crude oil in the fourth quarter, the biggest advance in 18 months, sent prices above $90 a barrel. Oil and gas accounted for 46 percent of budget revenue in the first 11 months of last year, according to the latest data available from the Finance Ministry. “Russian credit has always been deeply affected by the oil price,” said Kieran Curtis, who helps manage about $2 billion in emerging-market debt at Aviva Investors in London. Russia is also benefiting from being “less correlated with core Europe” at a time when investors are concerned that more European countries may need bailouts, he said. Rising oil prices are helping to improve Russia’s economic outlook. The budget deficit may shrink to 3 percent of gross domestic product in 2011, Finance Minister Alexei Kudrin said in a Dec. 29 interview with Rossiya 24. The government targets a deficit of 3.6 percent of GDP this year. The shortfall in 2010 probably reached 4.1 percent to 4.2 percent, Kudrin told reporters the same day. Bond Sales The drop in yields will help Russia as it plans to borrow the most on record this year. Plans include tripling domestic bond sales to 1.74 trillion rubles ($57.5 billion) and selling $7 billion of foreign-currency bonds, according to statements on the Finance Ministry website on Dec. 29. The cost to protect Russian government debt using credit- default swaps has tumbled to the cheapest level since September relative to emerging-market countries in eastern Europe, the Middle East and Africa. Russian credit-default swaps fell 5 basis points to 140 basis points yesterday, 64 basis points less than the Markit iTraxx SovX CEEMEA Index of eastern Europe, Middle East and Africa credit-default swaps. The discount widened to 66 points on Jan. 6, the biggest gap since Sept. 23, according to data compiled by CMA. Russian credit-default swaps have declined from as high as 1,116.7 in October 2008, after the collapse of Lehman Brothers Holdings Inc. triggered the global financial crisis. The government issued more than 2 trillion rubles in emergency loans to banks to help the domestic financial industry, Putin told an investment forum in Sochi last September. Brazil Swaps Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. The contracts are four times more expensive than the all- time low of 37 basis points reached in June 2007. Contracts for Russia, rated Baa1 by Moody’s, its third-lowest investment-grade rating, are 34 basis points higher than for Brazil, which is ranked two steps lower at Baa3. “This year the global economy will do quite well and grow quite strongly and in this environment, while we don’t expect a big spread narrowing, Russian debt will do okay, helped by oil,” said Anton Hauser, a fund manager who helps manage 1.4 billion euros ($1.8 billion) of emerging-market debt at Erste Sparinvest, part of Austria’s largest bank, in Vienna. ‘Kind of Cheap’ Russian credit-default swaps cost 2 basis points less than contracts for Turkey, which is rated four levels lower at Ba2. That’s a turnaround from November and December when Russian swaps cost more than Turkey, with the gap widening to 21 basis points on Nov. 29. “Spreads are still kind of cheap to the rating so it’s still okay value,” said Curtis at Aviva. The yield spread on Russian bonds is 50 basis points below the average for emerging markets, the biggest discount since Oct. 23, according to JPMorgan Chase & Co.’s EMBI+ indexes. Gains in Russia’s dollar bonds due in 2020 pushed the yield 10 basis points lower yesterday to 4.935 percent. The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell 11 basis points to 180, according to JPMorgan indexes. The difference compares with 122 for debt of similarly rated Mexico and 162 for Brazil. The ruble, which is managed by the central bank against a dollar-euro basket to limit swings, rose 1.1 percent to 30.2470 per dollar in Moscow yesterday, its strongest level since Dec. 28. Non-deliverable forwards, which provide a guide to expectations of currency movements and interest-rate differentials, show the ruble weakening to 30.4300 per dollar in three months. Vulnerable Russia has benefited from its relative lack of economic dependence on the euro zone compared with other eastern European countries in the CEEMEA Index, Curtis said. Russia’s dependence on oil for economic growth makes the country vulnerable to declines in energy prices, said Luis Costa, an emerging-markets credit analyst at Citigroup Inc. in London. Credit-default swaps jumped 47 basis points between Nov. 4 and Nov. 30 as the oil price tumbled by as much as $7 a barrel. “If we see a collapse in the hydrocarbon prices we have a serious problem here,” Costa said. Russian corporate debt has also been rallying. The yield on July 2014 bonds sold by OAO Gazprom, the world’s largest natural gas producer, dropped to 4.06 percent from 4.65 percent on Nov. 30. The yield on June 2022 bonds sold by OAO Lukoil, Russia’s second-largest oil producer, fell to 6.22 percent from 6.7 percent in the same period. “The credit metrics of the main Russian companies and of the Russian banking system are very acceptable even compared to developed countries, and government debt level is low,” said Marina Vlasenko, a credit analyst at Commerzbank AG in London. “Russia is looking very stable as a credit.” --With assistance from Paul Abelsky in London. Editors: Gavin Serkin, Alex Nicholson To contact the reporter on this story: Jason Webb in London at jwebb25@bloomberg.net. To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net.
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