Russia Unexpectedly Lowers Repurchase Rate on Ruble Liquidity Risk
Russia’s central bank unexpectedly cut its repurchase rate and raised the rate it pays on deposits to avert a potential ruble shortage in money markets as a slower global economy threatens the world’s biggest energy exporter.
The overnight auction-based repo rate was lowered a quarter-point to 5.25 percent, the first cut since last May, and the overnight deposit rate was increased by the same amount to 3.75 percent, the Moscow-based Bank Rossii said today in a statement, surprising all 23 economists in a Bloomberg survey. The refinancing rate was left at 8.25 percent, as expected.
Price pressures are easing around the world as the global economic recovery runs out of steam amid Europe’s debt crisis and U.S. efforts to avert recession. Russian growth missed analyst forecasts in the first half of the year and, with ruble liquidity deteriorating, the central bank may be preparing for a global decline, according to Neil Shearing, chief emerging- markets economist at Capital Economics.
Today’s decision “is an attempt to wrest back control over market interest rates, and may be a sign that policy makers are preparing themselves for a slowdown on the global economy,” London-based Shearing said in an e-mailed note. The narrower spread may shift transactions away from the interbank market, giving the regulator more control over liquidity, he added.
The ruble kept declines after the decision and traded near its lowest level in more than eight months against the dollar as oil prices dropped. It slipped 0.3 percent to 30.3170 against the dollar by 2:59 p.m. in Moscow. It slid 0.4 percent against the euro to 41.5891.
Today’s moves “will help contain the volatility of money- market interest rates amid emerging risks of a ruble liquidity deficit in the banking sector,” the central bank said. Rates are “appropriate” for balancing risks of quicker price growth and an economic slowdown in “the near term,” it added.
Liquidity has tightened in recent weeks, with lenders seeking more than five times the amount of spare budget money provided by the Finance Ministry at an auction yesterday.
Money held on correspondent accounts and deposits at the central bank, a gauge of liquidity, averaged about 880 billion rubles ($29 billion) this month, compared with 1.2 trillion rubles for the year so far, Bloomberg data show. Liquidity has tightened on global market volatility, growing budget savings and limited activity by the central bank on money markets, VTB Capital analyst Alexei Moiseev said today by e-mail.
“We clearly welcome the central bank’s decision as we have been quite concerned by the recent deterioration in the liquidity conditions in Russia,” Moscow-based Moiseev wrote.
Brazil on Sept. 1 became the second country in the Group of 20 Nations after Turkey to lower borrowing costs in response to the worsening global outlook. Mexico signaled Aug. 26 that it may follow suit, while Indonesia voiced similar plans yesterday.
Russian economic growth slowed to 3.4 percent in the second quarter from 4.1 percent in the first. Growth was 4 percent last year after a record 7.8 percent contraction in 2009.
Output may shrink 1.4 percent next year under the Economy Ministry’s worst-case scenario, which envisages a “world recession” cutting the average price of Urals crude to $60 a barrel, almost half the current level, according to a document obtained by Bloomberg. The base-case forecast sees 4.1 percent growth this year, 3.7 percent in 2012 and 4 percent in 2013, Deputy Economy Minister Andrei Klepach said Aug. 27.
Russian inflation has slowed the most this year among the so-called BRIC group as a good harvest eased food costs. Inflation won’t exceed a 7 percent target for 2011, the slowest since the Soviet Union’s 1991 collapse, First Deputy Chairman Alexei Ulyukayev said this month. Consumer-price growth fell to 8 percent as of Sept. 5, according to the central bank.
“We are effectively seeing the start of a monetary easing cycle,” Vladimir Osakovskiy, chief economist at Bank of America Corp. in Moscow, said by e-mail, adding that he expects a half- point cut in the refinancing rate by year-end. “With inflation set to slow further in the near future, the monetary easing will continue and intensify.”
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