Russian Economic News Wednesday July 15, 2009

Summary:

• Ruble depreciation attributed to declining oil prices – budget deficits and tight liquidity may possibly prevent acceleration of depreciation
  
• PPI has increased significantly over the past month signaling a build up of inflationary pressure.

From... Troika Dialogue Russia Market Daily:

Headline: Ruble Depreciation May Half as Excessive Free Liquidity Evaporates

• Recent ruble depreciation triggered by declining oil prices
  
• The increase exchange rate sensitivity to oil prices is connected to the ruble liquidity injection through budget channels
  
• Budget ran a significant deficit in June, banking accumulated more than R1.1T in deposits
  
• Since banking system is demonstrating increased demand for rubles, and oil prices are increasing, ruble is not expected to fall dramatically
  

From... Business New Europe Daily News Letter:

Headline: PPI Hits 2.2% in June

• PPI Growth points to a build up of inflationary pressure – producer prices increased by 2.2% MoM – significantly over the 1.3 MoM estimate
  
• Suggests that the inflationary pressures have stared to build up
  
• CPI rate has lagged behind closing at 7.4% YTD
  
• Oil and Gas prices push PPI up – wholesale prices rose 14.3%
  

  
  

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

Russian Economic News Monday July 6, 2009

Summary:

• Foreign debt is increasing, partially due to gaining access to foreign investment.
  
• Trade balance is positive; lack of import growth suggests room for an import substitution effect
  
• Reliance on oil is becoming an evident problem for economic recovery
  
• Economically, with residential summit, Russia hopes to attract more capital from the US
  

From... United Bank of Switzerland Daily News Report 7/6/09:

Headline: Economics -- Rollover ratios for Russian Debt Rising

• External debt rose $24.3B USD from 1Q09 - to 2Q09
  
• Banks reduced foreign debt by $4B
  
• Gov't debt steady @ $27.7B
  
• CBR recorded $8B (up from $0 in 1Q09)
  
• Commentary: Select Russian companies have access to foreign loans. Good sign - it means that interest rates have fallen to levels that are attractive for borrowers, rather than dependence on public sector structures for refinancing.
  

Headline: Banking -- State Duma Approves the Law on Recapitalization of Banks via Federal Bonds

• The law states that a bank's capital will be increased by state OFZ bonds (Облигации Федерального Займа, federal coupon bearing bonds), in exchange for preferred shares to the state.
  
• Bonds set to mature 2019 @ w/ dividends at a margin of 3% of the coupon
  
• Bank shareholders can repurchase the bonds until 2014, after 2014, the state can sell it stake to other investors
  
• If bonds not redeemed by 2019, preferred shares will be converted into common stock
  

From... Alpha Bank Morning Brief 7/6/09:

Headline: Equity Market -- What Goes Up...

• Market performance was poor late last week; erased all gains from earlier in the week -- based on falling oil prices
  

Headline: Russia's Foreign Debt Increased by $24.3B USD in 2Q09

• Large portion due to oil companies borrowing from China
  

From... Deutsch Bank Morning Comment 7/6/09:

Headline: CBR - Russia's External Debt at $475.1B USD end June 2009

• Corporate rebounded by end of 2Q09 after a decline due to improvement in attitude towards global capital markets, ruble appreciation, higher oil prices
  
• The slowdown in the decline in corporate external debt suggests that with new borrowings and significant rollovers, the high-debt stock in corporate sector is still a problem
  

Headline: Russia's trade balance expands in 2Q09

• Russia's trade surplus expanded by $24.1B USD in 2Q09 due to the rise in fuel exports
  
• Growth of imports partly due to ruble appreciation
  
• Growth in fuel exports reflects the effects of the resumption of oil price growth
  

From... Troika Dialogue

Headline: Balance of Payments Remains Stable in 1H09

• Debt increased mostly due to borrowing by non-financial sector; banks kept paying foreign liabilities
  
• Illustrate that financial situation eased in 2Q09
  
• Balance of Payments indicates that there was no acceleration of imports growth May-June
  
• Lack of growth in imports left some room for important substitution
  

From... Business New Europe

Headline: Russia-US Summit – Investment Angles

• Russia needs access to US investment capital because oil revenues can not continue to pay for investment
  
• Investment in Russia have been either negative or insignificant due compared to other developing economies
  
• Factors include: high oil vulnerability, declining economy, bigger bank debt problem, and poor perception of Russia amongst international investors
  
• US would like Russia to back off its efforts to undermine the role of the dollar as the global reserve currency
  

Headline: Kudrin says 2010 Budget Could Assume Oil at $55 per Barrel

• FinMin forecasts crude oil averaging $55/barrel in 2010 and $54 in 2009
  

Headline: Russia's Foreign Debt Grows by 5.4% in 2Q09

• Two main factors leading to increase in debt: weakening of the dollar (which increased the value of non-dollar part of debt) and repatriation of capital to Russia by direct investors
  

Headline: 3Q Outlook – Russian Finance: Signs of Life

• Demand for Ruble debt is based on the appreciating Ruble, rising reserves, and falling interest rates
  
• The government is encouraging and demanding banks to start lending
  
• Interest rates will likely be cut by the CBR
  
• Fiscal stimulus planned in response to the crisis should start having an impact in 2H09
  

Headline: Inflation .6 % Inflation in June, 7.4% Jan-Jun

• Russia had .6% Inflation in 6/09 compared with .6% in 5/09 and 1.0% in 6/08
  
• Jan-Jun inflation was at 7.4%, 1.3 points lower than 8.7% the same period last year