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Buzz Barometer: "Interest Rates at 9.5% Look Very Odd"
November 2, 2014 11:39

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The international press was nonplussed about the Central Bank’s move to hike its benchmark interest rate by 150 basis points at a time of sluggish growth and private companies crying out for cheaper money to kick-start the economy.
The Wall Street Journal’s Andrey Ostroukh presented a great piece of analysis which shows that the action by the country’s Central Bank “did little to stabilize the currency, which rebounded briefly after the rate increase was announced but then slid back toward recent record lows.”
The author also points out that the Russian central bank “spent more than $28 billion from its reserves in October to slow the slide.
“To have a rally, we need to see oil prices going up, or a significant improvement in the geopolitical backdrop,” the newspaper quotes Sébastien Barbé, head of emerging market strategy at Crédit Agricole. “When your economy is barely growing, interest rates at 9.5% look very odd.”
The bottomline is “the interest rate rise is likely to further squeeze Russian businesses, which have already been facing a credit squeeze after Western sanctions all but cut off major sources of lending.
Ostroukh, however, appears to have made a mistake by saying that “the one-week repo rate—which serves as a ceiling for money market rates—was moved to 10.5% from 9%,” which runs counter to the information provided by the Russian Central Bank.
Actually, it’s one day repo, overnight loans, lombard loans and FX swaps that will be priced at 10.5 percent.
The Daily Mail cites Neil Shearing, chief emerging markets economist at Capital Economics: “This represents a pretty bold move by the CBR to regain the initiative, having been faced with a collapse of their currency. The question is will it work?"
The British newspaper also brings up rumours that circulated among speculators and media outlets of an agreement between Russia and Ukraine over Crimea, which Moscow incorporated back in March. The rumour sent the rouble up 5 percent ahead of the Central Bank session.
Standard Bank analyst Timothy Ash warned investors that "market reaction suggests that they will need to do more - which could well push the Russian economy formally into recession.”

Bloomberg quotes two more analysts:
Ivan Guminov, money manager at Ronin Trust in Moscow:
“A very harsh decision -- this hurts. What I’d like to understand is how the banks are going to manage this cost of funding?”
Yury Tulinov, an analyst at OAO Rosbank:
“For the ruble, the effect is not super positive, since the rhetoric turned softer: instead of a sentence on ‘possible tightening of monetary policy’ they now have a sentence on possible easing. Perhaps that’s the reason why there’s no market impact from this 150 basis-point hike.”

MarketWatch cites Oleg Kouzmin, economist at Renaissance Capital who said: "This decision is purely negative for Russian economic growth prospects. However, the central bank hints that it might be a short-term tightening, until situation with ruble becomes better." 

Author: Mikhail Vesely

Tags: Russian rouble Russian economy Buzz Barometer Moscow  

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