Richard, currencies trade restiction plus hyperinflation should lead to massive Goal hoarding....just as it was in former Soviet Union...
Russia's Central Bank Launches New Ruble Loan Program to Rescue Banks
Russian Central Bank Plans New Loans to Rescue Banks (Update1) (Adds Chicago ruble futures trading in 12th paragraph.)
Moscow, Sept. 21 (Bloomberg) -- The Russian central bank will spend an estimated 70 billion rubles ($3.8 billion) it doesn't have to restart a banking system paralyzed by a cash shortage.
The central bank tomorrow will begin lending to banks using defaulted government bonds held by the banks as collateral. The central bank on Friday allowed Russian banks in five regions to draw on their reserve accounts to settle debts with other banks and the government, and will involve more banks this week, inviting regional branches of Moscow-based banks to participate.
The end result of the bank's effort likely will be to push the value of the currency lower and inflation higher, and to prop up some banks that ought to fail, analysts said. ''I cannot see any way they can recapitalize the banks without printing money,'' said Kingsmill Bond, an emerging market analyst at Deutsche Bank securities. ''It seems they are trying to save as many of the banks as possible and the more banks you try and save, the more money you need to print, and the higher risks of some very high inflation.''
On the Verge
Russian banks held more than a quarter of their assets in Treasury bills, and when the government defaulted on 281 billion rubles ($40 billion at the time) of the debt on Aug. 17, it left many banks on the verge of collapse. With most banks unable to process payments, interbank payments have virtually stopped and imports have slowed to a crawl. At the same time, millions of depositors are unable to make withdrawals.
The central bank won't say how much their plan will cost. Analysts predict the program could add as much as 70 billion rubles to the money supply.
Last week, the central bank allowed commercial banks to draw up to 30 percent on their reserve accounts to pay off interbank debts. The banks paid off some debts, but still owe about 30 billion rubles, said central bank First Deputy Chairman Andrei Kozlov. Banks used between 13 percent and 14 percent of their reserve funds to pay off debts, while some didn't take part in the payment program at all, Kozlov said. 'Ruble Cheapening'
Banks will again be allowed to draw from their reserve funds on Friday. The central bank plans to replenish the shrunken reserve with loans backed by the banks' defaulted ruble debt.
Banks that failed to submit a list of their debts will be barred from buying foreign currency, Kozlov said. That will prevent banks from buying up dollars with the rubles they received in payments from other banks.
Because of concern that the banks will immediately convert any new rubles they receive to dollars, the central bank halted currency trading in Moscow for a second day today. Trading is set to resume tomorrow, and banks the central bank will prohibit some banks from buying foreign currency.
Even so, the central bank's move to help banks ''will lead to cheapening of the ruble and higher inflation'' said Alexei Zabotkine, a fixed-income analyst at United Financial Group in Moscow. ''In conditions when all liquidity ultimately comes out on the currency market, we really can't expect any other results.''
The central bank halted all dollar trading in Moscow today after eight minutes. In that time, the ruble fell for a fifth day, dropping 11.5 percent to 18.5 per dollar.
Rubles for December delivery fell 11.8 percent to 3 cents per ruble, a new low, in early trading on the Chicago Mercantile Exchange. That translates to an exchange rate of 33 rubles per dollar.
Doomed Banks
The central bank is faced with the task of weeding out doomed banks from those which ought to survive. However, it may not have the political will to allow some banks to fail, analysts said.
The central bank must ''get out all the old debts, determine which banks are not solvent, and close those banks, without trying to save them,'' said Zabotkine. ''We have doubts that the current leadership of the central bank is ready to conduct such strict politics with problem banks.''
Central bank Chairman Viktor Gerashchenko has asked the parliament to amend the law prohibiting the central bank from lending to finance the government's budget deficit. The government and the legislature also have plans to print more money. The government plans to print more to pay off wage and pension arrears and the lower house of parliament, the Duma, has proposed a plan to print money for a bank deposit insurance plan.
Back Wages
Acting Finance Minister Mikhail Zadornov said the government wants to pay 30 billion rubles in back wages by the end of the year and 9.6 billion rubles in pensions. The government assumes it will receive 15 billion rubles in revenue per month. ''Printing money is not the solution but it's unavoidable,'' Zadornov said.
Prime Minister Yevgeny Primakov, approved by the Duma two weeks ago, set wage and pension arrears payments as the priority of his new government. Analysts estimate government plans to cover state wages and pensions are estimated to require at least 50 billion to 70 billion rubles.
Some analysts say more than 3 billion rubles ($205 million) may already have been printed to pay back wages and pensions to the military. 'Shattered Confidence'
The ruble likely will continue to fall, analysts said. ''No one wants to hold rubles -- confidence has been totally shattered,'' said Thierry Melleret, chief economist at Alfa Bank in Moscow. Printing money automatically fuels inflation, which is a great incentive to hold dollars instead of rubles.''
Inflation already has jumped. The state statistics office said last week that consumer prices rose 43 percent in the first two weeks of September, which would equal an annual rate of almost 1,500 percent, after a 15 percent rise in August. The ruble's rise is likely to put further pressure on prices.
The government, however, insists the measures won't weaken the ruble substantially.
Kozlov said the central bank's loans will not spark a rise in inflation, because the amount of printing will be small. The additional amount banks received last week, or the amount the central bank likely printed, was 900 million rubles, he said.
The central bank's loans to banks ''won't be a huge dumping of money'' into circulation, said Kozlov. ''This won't have major implications for the rate of the ruble. . . We don't expect any major inflationary results.''
The central bank will try to limit any printing of money, Kozlov said. |
