On interest rate cut
MOSCOW, March 13 (AFP) - When President Boris Yeltsin sneezes,
the markets invariably catch a cold.
But Friday's news that the Kremlin chief had sustained an acute
respiratory infection only registered as a sniffle in Russian
markets, which found handy medicine in a central bank interest rate
cut.
Yeltsin, for years seen as the chief guarantor of reform by
investors nervous of the credentials of his potential successors,
was forced to cancel his appointments Friday and rest at home due to
an acute respiratory infection.
Equity markets were initially knocked back, but quickly recouped
most of their losses and were flat in late trading, according to one
broker. Bond yields continued to decline, drawing encouragement from
the central bank's announcement of a Lombard rate cut to 30 percent
from 36, effective Monday.
"The news that the central bank had cut interest rates initially
put the market in a fairly bullish mood," a trader at Brunswick
Brokerage in Moscow said. "Then suddenly the news about Yeltsin
knocked us back, but not by much.
"If the market survived something like this it means it is
pretty solid," he added.
"The market suffered a bit but then there was a correction,"
said Gavin Rankin, chief investment officer at Troika Dialog
investment bank.
Some of the major stocks were still showing some slippage, a
clear sign of "caution in the aftermath of the Yeltsin health
announcement," Rankin said.
But he pointed to the interest rate cut as a positive sign for
equities, whose benefits will now be more attractive in comparison
to those of lower-yielding government bonds.
"Interest rates have been reducing extremely fast," Rankin
noted.
Friday's cut was the third in a month, following sharp hikes in
leading rates to as high as 42 percent earlier in the year. Those
hikes were aimed at warding off a threat of devaluation of the
ruble, which had come under pressure in the wake of the financial
crisis in Asia.
The market has fluctuated all week, drawing strength from a
positive assessment of the Russian economy from one credit ratings
agency on Tuesday only to fall back as another downgraded Russia's
borrowing ratings the next day.
"It's certainly on people's minds," Rankin said of the
much-criticised move by Moody's Investors Service to lower Russia's
rating. "It's not a move in the right direction."
Russian officials moved Thursday to play down the rating
reassessment, pointing to strong growth potential for the first
quarter of 1998, and lower rates as positive signs.
Yeltsin himself shrugged off the downgrade, saying Russia had
nonetheless weathered the financial storm blowing in from Asia.
And political analysts Friday doubted that the president's
current illness would have a long-term destabilising effect that
would heap more turmoil onto markets.
"There is now an almost remarkable political stability in Russia
and Yeltsin's participation is no longer so decisive," said Nikolai
Petrov of the Carnegie Foundation.
"Even if he is absent for a while it will not cause
instability." |
