Russia cuts interest rates... This is a positive.
-Vi
MOSCOW, July 24 (AFP) - Russia's central bank cut its leading
interest rate, the refinancing rate, from 80 percent to 60 percent
Friday, a central bank spokeswoman said.
The cut is to be effective from Friday, and comes despite a
sharp fall in the value of the ruble this week. The spokeswoman
would not give a reason for the easing of the refinancing rate, the
bank's prime indicator of the prevailing rate in the economy.
The ruble lost a further kopeck and a half against the dollar in
interbank trade Friday as a heavy sell-off of the Russian currency
continued amid a renewed slump on financial markets, Interfax
reported.
The ruble was trading at 6.27 to the dollar, down from 6.255 on
Thursday.
Markets continued their downward slide on the news, with stocks
opening some 2.8 percent lower on Thursday's close. Traders said
that investors were interpreting the rate hike as a coordinated
strategy to ease the ruble's value gently downwards.
"The idea seems to be that the authorities want a ruble slide
slowly, so they can help oil companies become more profitable," said
Alex Gorelik, a trader with the Rinako Plus brokerage.
"A slide devaluation of 10 percent will help oil companies, and
so help the budget, without overly hurting the banking sector that
would be killed off by a forced sharp devaluation," Gorelik said.
"Other than that I don't see why they need to lower rates," he
added. "Lower rates sends the signal that we're out of the woods,
but that's clearly not the case."
The central bank was forced in May to hike rates to 150 percent
to defend its currency from a massive investor sell-off, triggered
by growing concern over the state of government finances.
The bank pared rates back to 60 percent on June 5, but was
forced once again to hike the refinancing rate to 80 percent on June
29.
MOSCOW, July 24 (AFP) - Russia's central bank cut the economy
some slack Friday by easing interest rates in what economists said
was a move to offset the painful effects of a government austerity
package on business and the oil sector.
The bank said it had lowered its leading rate, the refinancing
rate, to 60 percent from 80 percent effective Friday. Bank officials
would not comment on the reason for the cut, which comes despite a
steady decline of the ruble this week.
But economists and market players said the decision would ease
the pressure of punitively high rates on economic growth and
industry, and allow an economy wheezing under the constrictions of
the government's belt-tightening measures a chance to breathe
again.
The government has already revised its growth forecast for 1998
sharply downwards as a result of the financial crisis, predicting
that gross domestic product (GDP) will contract by 0.5 percent this
year, and not grow by two percent as previously predicted.
"The country can't exist on high interest rates," said Al
Breach, an economist with the Russia-European Centre for Economic
Policy. "They have done the things now that should have made it
possible to defend the ruble, and they have got the IMF
(International Monetary Fund) money.
"They have now to bring interest rates down to a level where the
economy can work," he added. "They have moved into a situation where
people aren't expecting a run on the currency, so they can allow the
ruble just to depreciate a little."
The ruble has done just that this week, sliding from 6.20
against the dollar on Monday to change hands at 6.27 on Friday.
Traders have explained the slide on a bout of profit-taking in
Russia's financial markets which followed the decision by the IMF to
earmark 11.2 billion dollars in fresh loans to Russia by year-end,
conditional on Moscow pushing through its radical belt-tightening
measures.
The new money, part of a 22.6-billion-dollar bailout package for
Russia, was approved to rescue the country from the gravest economic
crisis since the chaotic early 1990s.
The ruble has creaked under intense pressure for months as
investors fled markets fearing that a yawning gap in government
finances could trigger outright economic collapse.
The central bank has been forced to hike interest rates to
punitively high levels to defend the ruble. Rates peaked at 150
percent in May, and have persisted above 50 percent for more than
two months now.
Analysts believe that the IMF money has bought the government --
and the ruble -- some breathing space, but expressed concern that
Friday's rate cut may have come too soon.
"It would have been better to wait a little bit longer," said
John Orford, an emerging market specialist at Robert Fleming
Securities in London.
"The markets haven't really stabilised yet," he pointed out.
"There is heightened concern in the financial community that the
measures agreed with the IMF might have some difficulty passing in
the (State) Duma" lower house of parliament.
Traders said that markets were interpreting the bank's move as a
coordinated strategy to ease the ruble's value gently downwards,
particularly now that the spectre of a forced, sharp devaluation has
been averted by the international bailout.
"The idea seems to be that the authorities want a ruble slide
slowly, so they can help oil companies become more profitable," said
Alex Gorelik, a trader with the Rinako Plus brokerage.
"A slide devaluation of 10 percent will help oil companies, and
so help the budget, without overly hurting the banking sector that
would be killed off by a forced sharp devaluation," Gorelik said.
"Other than that I don't see why they need to lower rates," he
added. "Lower rates sends the signal that we're out of the woods,
but that's clearly not the case."
Stocks were trading little changed from Thursday's close in
mid-afternoon trading. The Russian Trading System (RTS) index stood
at 160.33 at 1:00 p.m. (0900 GMT) from 159.86 at Thursday's close.
MOSCOW, July 24 (UPI) -- Russia's Central Bank has cut the refinancing
rate from 80 percent to 60 percent, effective immediately, to ease
pressure on the economy.
The Central Bank, which boosted rates as high as 150 percent in May
to protect the ruble, had said it intended to pull the rates back below
50 percent as soon as possible.
The ruble has been under pressure for three months on global currency
markets on rumors of a devaluation, which seems unlikely now that Russia
has secured billions of dollars in new stabilization loans from the
International Monetary Fund and World Bank, which will boost Central
Bank reserves.
The move sent the ruble lower, as currency traders speculated the
government would allow the currency to depreciate against the U.S.
dollar to help exporters.
The ruble traded at 6.26 to the dollar, down from 6.20 a week
earlier.
Russian shares also moved lower, falling almost 2 percent in light
trading after losing 5 percent Thursday.
But Russia's oil exporters, who have been battered by a government
tax crackdown and falling world prices, will be helped by the rate
reduction. |
