Russian Economic News Tuesday July 14, 2009

Summary:

• Macroeconomic projections for the next 3 years are mildly optimistic – based on projected oil prices.
  
• CBR's refinancing rate cut with corresponding ruble devaluation shows the extent of liquidity problem
  

From... Deutsch Bank Morning Comment:

Headline: Government Approves Macroeconomic Projections for 2010-2012

• Projections for 2010-12 based on oil price projectsion -- $54/bbl in 2009, $55-2010, $56-2011, $57-2012
  
• Economy expected to recover from 8.5% contraction to growth of 1% in 2010, 2.6%-2011, 3.8%-2012
  
• Exports will recover by 7-8% after a 50% contraction
  
• Government approved tariff increases on gas, electricity, and railways
  
• The reduction in growth of tariff increases in due to higher concerns on the poor performance of the real sector
  

From... Business New Europe Daily News Letter:

Headline: Rate Cut Proves Fragility of Ruble Appreciation

• CBR announced a cut in the refinancing rate to 11%
  
• Devalued the Ruble in response – underscores the liquidity problem
  
• CBR has been cutting the refinancing rate according t slowing inflation
  
• Cuts are intended to lower lending rates, but there is lack of long-term funding
  
• Decline in value of the Ruble most likely exacerbated to falling oil prices
  
• Could also reflect expectations of further rate cuts; the expectation that poor growth will lead to deflation
  

Russian Economic News Monday July 13, 2009

Summary:

• Central Bank of Russia has cut the rates to promote lending activity
  
• Bank deposits are still high leading to potential liquidity problem
  

From... United Bank of Switzerland Daily News Report:

Headline: CBR Introduces More Rate cuts

• CBR Lowered its major policy rates
  
• Main reason for change was weakening inflation and completion of the correction period on the currency market
  
• CBR Goal: To promote lending activity – fully expected
  
• If inflation proceed to fall, CBR will probably continue cutting rates , which experts say are too high
  

From... Business New Europe Daily News Letter:

Headline: CBR Cuts Refinancing Rate to 11%, Expects Lending to Recover

• Refinancing rate dropped by 50 pts to 11%
  
• Ruble reacted by falling 3%
  
• Cut expected by the markets, authorities are certain that inflation will continue to decline at least until the end of summer
  
• Cut will not have a rapid and direct effect on lending rates.
  
• Nonperforming Loans are still an obstacle to lending recover
  
• Weak economic indicators might create deflationary pressure
  
• Decline in oil prices could also be prompting a new round of foreign-currency buying
  
• If prices keep falling, the ruble will continue to drop
  

Headline: Budget Deficit Reaches 8.8% in June

• Federal budget deficit amounted to R277B, 8% of GDP in June 09
  
• Revenues increased due to increase in oil and gas revenues and increase in prices
  
• Expenditures increased due to increase government support for the financial crisis
  
• Budget is expected to exceed 11% GDP due to increase in budget expenditures
  
• Further anti-crisis expenditures expected
  
• Reserve fund will be the main source of financing
  

Headline: Reserve Fund Declines $6.4B USD in June

• The Reserve Fund amounted to $94.9B – a decline from $101B in June
  
• Due to an oil and gas transfer
  
• Budget situation will become more problematic in 2H09
  
• Although oil and gas revenues will stabilize, non-oil revenues will decline and expenditures will increase
  
• Will lead to a higher budget deficit
  

Headline: Bank Deposits with CBR Rose Another 25% in June

• The growth of the monetary base accelerated to 5.4% MoM from 5.1% in May
  
• The breakdown of the base suggests that lending is still not recovering – banks are continuing to accumulate a liquidity overhang
  
• Main contributor to growth was commercial banks' deposits with CBR
  
• Deposit growth rates suggest that the lending environment is still poor
  
• Banks are still unable to transfer state support to the real economy
  
• Liquidity overhang is a potential threat to the exchange rate market
  

 

Russia and the WTO

The 16-year saga of Russia's accession to the World Trade Organization experienced a new development on Friday. At the G8 conference in Italy, President Dmitri Medvedev announced that Russia will continue negotiations for entering the WTO independently from the trade union with Belarus and Kazakhstan. Such a course would contradict earlier statements from Prime Minister Putin, who unexpectedly stated in June that Russia was abandoning its nearly-completed independent WTO accession in order to join as a trade union. US and EU representatives lamented Putin's announcement, noting that this would delay Russia's accession for many years, as all three countries' trade policies would have to be harmonized with WTO requirements. Before Putin's statement, many negotiators thought Russia could join by the end of the year.

Interestingly, a recent poll by VTsIOM showed that 41-44% of Russians think joining the WTO would benefit their country, versus 20% who think it would be against the country's interests.

Some US meat now welcome in Russia

According to the wonderfully-titled Meat International, the Russian government has decided to lift its ban on pork from the US states of Illinois, New Jersey, Pennsylvania, and Texas. The Russian Veterinary and Phytosanitary Monitoring Service (Rosselkhoznadzor) originally imposed the ban to prevent the spread of the A H1N1 swine flu virus, despite the fact that the World Health Organization denied that it was possible to contract the virus from meat. Many saw the ban as a political move to placate Russian producers - Russia also increased tariffs on other types of meat at the beginning of the year. This is important news for the Russia/US trade relationship, as meat represents a substantial portion of trade between the two countries.

Russia to end tariffs on Farm Machinery

Russian Prime Minister Putin announced that the government will not continue the recently-imposed tariffs on agricultural machinery. The tariffs, which increased costs for foreign imports by as much as 25 percent, were aimed at helping domestic producers, who will now benefit from subsidies. US companies John Deere and Caterpillar both saw Russian sales plummet drastically after the new duties were imposed. On a perhaps related note, John Deere announced that it will invest $500 million in Russia over the next few years to develop its Russian manufacturing capacity.

Russian government considers restricting tax-free goods for travelers

A proposal by the Russian Trade Service would limit the value of goods travelers an bring in the country without paying import duties from 65,000 rubles (~$2,000) to 20,000 rubles (~$630). The government is facing budget deficits as it engages on a large fiscal expansion and is attempting to increase government revenues as a result.

From the article:
"Denis Daniilidis, the EU delegation’s spokesman in Moscow, said 20,000 rubles is extremely low. 'Russian visitors are very good shoppers who spend a lot of money. Now one pair of shoes or a camera would already be too much,' he said."

"Experts said such measures would greatly hamper trade and barely help improve customs revenues. Natalya Orlova, chief economist with Alfa Bank, said the sums were too small to effectively battle the problem of falling state revenues. 'This will just be an extra inconvenience for individuals,' she said."

Russian Economic News Thursday July 9, 2009

Summary:

• The Ministry of Finance is going to increase excise taxes to help finance the budget; problems might arise from tax collection rates
  
• Central Bank feels that small banks are setting deposit rates too high, which increases the costs the loans and the potential of bad asset accumulation
  
• Mixed news on Inflation, but generally positive – inflation at the beginning of the month at .2%, but CBR expects it to be 0% for the month
  

From... United Bank of Switzerland Daily News Report:

Headline: Economics – Ministry of Finance to Introduce Higher Excise Taxes

• Initiative to increase future financing of the budget
  
• Will increase taxes on alcohol, cigarettes, fuel, and growth in mineral extraction and export
  
• The increase is estimated to result in a R251.2-271.2B increase in revenues
  
• Tax burden will be on alcohol producers; taxes would increase by 30%
  
• This was expected, and could lead to a lesser burden on reserve fund (which may be already drained; deficit at 6.5% of GDP)
  
• Problems relate to the alcohol industry tax collection rates; currently only at 45%
  

Headline: Banks – CBR Warns Banks Against Deposit Rates Being too High

• CBR announced that scrutiny over the level of the deposit rates in the system needed to be increased
  
• Higher lending rates are due to smaller banks offering deposit rates that are too high; exacerbates the bad loan problem
  
• Loan affordability is related to the cost of funding for Russian Banks
  
• CBR should continue to stimulate reductions in deposit rates which would stimulate growth and lessen asset quality issues
  

From... Deutsch Bank Morning Comment:

Headline: CBR Expects Inflation to be Close to Zero in July

• Deputy head of CBR expects inflation to be close to 0% in July, and close to 0% in August
  
• Inflation in 2008 for July and August was .5% & .4%, respectively
  
• If inflation is 0-.5% MoM, we can expect YoY terms of 11.4%-12% for July
  
• Minster of Economic Development announced that they will reduce inflation target from 13% to 12-12.5%
  

From... Troika Dialogue Russia Market Daily:

Headline: Inflation at .2% over first six days of July

• CPI rose .2% between June 30 and July 6, same as a year earlier
  
• CPI not expected to exceed .5% for the month
  
• Increased was due to rising oil price and growth in tariffs
  
• Regardless, positive view on inflation this year, annual figure estimated around 10.5%
  
• Central Bank is expected to continue cutting base rates