VTB Group, Russia’s second-largest state bank, is calling on policy makers to lower interest rates to help spur credit just as Bank Rossii reiterates its commitment to refrain from monetary easing.
Lowering the refinancing rate to between 5 percent and 6 percent from 8.25 percent would allow banks to reduce loan costs and make “a big difference for the industry,” Andrey Kostin, chief executive of VTB Group, said in an interview with Bloomberg TV’s Ryan Chilcote yesterday in London.
Kostin’s appeal added to months of government calls for policy makers to cut borrowing costs to spur economic growth amid Russia’s slowest expansion since a 2009 contraction. First Deputy Chairman Alexei Ulyukayev said at an investment conference in London yesterday that “the situation from the economic point of view has more or less stabilized” and further easing isn’t warranted.
The Micex Index climbed for a fourth day, adding 0.9 percent to 1435.41 by 12:52 p.m. in Moscow. A close at that level would be the highest since March 29. The index has lost 2.6 percent this year, compared with a decline of 0.5 percent for the MSCI Emerging Markets Index. The Bloomberg Russia-US Equity Index rose 0.8 percent to 95.70 in U.S. hours yesterday, while RTS Index futures added 0.1 percent to 143,300.
Russia kept its main interest rates unchanged in May for an eighth month after becoming the biggest emerging economy to raise borrowing costs in 2012 with an increase in September.
Bank Rossii is scheduled to meet on interest rates in the first half of June, just before Chairman Sergey Ignatiev steps down to be replaced by Elvira Nabiullina, a former economy minister and now aide to President Vladimir Putin, on June 24.
“There is a change of guard at the central bank in June, so we expect maybe that after that there will be some movement in that direction,” Kostin said.
While Putin has urged ministers to boost the economy and policy makers from Poland to India reduced borrowing costs to aid growth, Bank Rossii has held the refinancing rate at 8.25 percent since September with inflation at least one percentage point above its target this year. Monetary easing is “likely to worsen the situation,” former Finance Minister Alexei Kudrin said at the conference sponsored by VTB. He said Russia needs “structural measures” and the economy of the world’s largest energy exporter remains too depended on oil.
Russia’s economy may expand as much as 3 percent this year, Ulyukayev said. That would be the slowest pace since 2009, when gross domestic product shrank 7.8 percent, data compiled by Bloomberg show. The Micex index, with six of the 10 biggest companies in the oil and natural gas sectors, has the cheapest valuation of 21 emerging markets tracked by Bloomberg.
“A rate cut would be good for banks as it would boost their profitability,” Mansur Mammadov, who helps manage $100 million at Kazimir Partners in Moscow, said by phone yesterday. “It would be also good for companies with a high level of debt that tend to refinance on domestic market.”
Stocks on the Micex gauge trade at an average multiple of 5.3 times estimated earnings, compared with 13.9 for India’s S&P BSE Sensex Index, 11.6 for Brazil’s Ibovespa and 9.5 for China’s Shanghai Composite Index, according to data compiled by Bloomberg.
The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, rallied 1.2 percent to $27.57 in New York, the highest level since May 10. The RTS Volatility Index, which measures expected swings in the stock futures, fell 2.5 percent to 19.93.
OAO Sberbank, Russia’s largest lender, added 0.9 percent to 109.71 rubles per share in Moscow today, heading for the highest closing level since 2007. The stock gained 1.3 percent to $14.18 in London today and 2.2 percent to $14.07 in New York yesterday, the biggest advance on the Russia Bloomberg-US gauge.
OAO Mobile TeleSystems, the country’s biggest mobile provider, known as MTS, rose 0.8 percent to 270.65 rubles per share in Moscow, gaining for a second day. It rallied 2.1 percent to a seven-week high of $20.74 in New York.
Russia’s Anti-Monopoly Service initiated a case against OOO Rubicon Wireless Communication and Uzmobile on suspicion of forming a cartel to force MTS from Uzbekistan, the service said in a statement on its website yesterday.
The ruble strengthened 0.1 percent to 31.20 per dollar and added less than 0.1 percent to 35.3141 against the dollar-euro basket used by the central bank to manage swings that erode exporter competitiveness. Ruble futures showed the currency little changed at 31.90 per dollar.
“Monetary policy is not Russia’s biggest problem,” Lars Christensen and Vladimir Miklashevsky, analysts at Danske Bank A/S, said in an e-mailed report today. “Russia’s biggest problem is structural. The country is struggling with significant overregulation, lack of competition and widespread corruption.”