Russia’s high interest rates are strangling investment, with currency volatility a bigger trigger for capital outflow than any financial fallout from Cyprus’s bailout, Economy Minister Andrei Belousov said.
“Russia is experiencing a deterioration in investment conditions now, which is related to rising interest rates,” Belousov said yesterday in an interview in Hanover, Germany, where he was traveling with President Vladimir Putin. Currency volatility also raises the risk of investing in ruble-denominated assets, which may be prompting “many investors to push back decisions on investment projects.”
The economy of the world’s largest energy exporter will grow no more than 3.2 percent this year, missing the earlier forecast of 3.6 percent, Belousov told reporters yesterday. The central bank left its main interest rates unchanged at a meeting last week, spurning calls from Belousov and other government officials to reduce borrowing costs.
Russia’s first-quarter net private capital outflows of $25.8 billion are “seasonal” and not representative of what may happen for the rest of the year, Belousov said in the interview. Concern over Cyprus’s debt crisis probably didn’t play a major role, he said.
“Cyprus may have an effect on outflows, but it would be systemic,” he said. “Risks have risen again, and we’re seeing outflows. It’s a general trend of outflows from developing markets into low-risk assets, above all in the U.S. That’s normal.”
The ruble weakened for a sixth day against the central bank’s target dollar-euro basket, depreciating 0.2 percent to 35.8802 as of 10:16 a.m. in Moscow. The central bank sold foreign currency to buy rubles on the domestic market for a second day on April 4, according to data posted on the regulator’s website.
Output in the first quarter probably expanded about 1 percent from a year earlier, Belousov told reporters, down from a 2.1 percent pace in the final three months of 2012. Consumer-price growth may slow to 5.8 percent to 6 percent by year-end, from 7 percent in March, he said.
Russian companies and individuals have $31 billion of deposits in Cyprus, according to Moody’s Investors Services and Monument Securities. The bailout will probably provoke an outflow of Russian money back home, Putin said in an interview with Germany’s state-owned ARD television before an April 7 visit to the European nation.
“The more you ‘pinch’ foreign investors in the financial institutions of your countries, the better for us because the affected, offended and frightened -- not all of them but many -- should, so we hope, come to our financial institutions and keep their money in our banks,” Putin said.