By Vladimir Tikhomirov, BCS Financial Group
Russia’s central bank faces a dilemma at its monetary policy meeting on Friday. It stated when it hiked interest rates to 17 per cent last month – to their highest levels since 2003 – that this increase would be a temporary measure to defend the rouble. However, inflation stubbornly remains high, restricting the bank’s room to manoeuver.
Indeed, recent inflation data suggests that the new interest rate could stay for much longer. According to the official statistical agency, in December Russia’s consumer price index (CPI) jumped by 2.6 per cent month-on-month which is the highest level on record since the period of mid-1990s when inflation was running at unsustainable high double-digit rates. Read more
As Alan Beattie wrote recently, a clear divergence in monetary policy is polarising the emerging market (EM) universe. Some countries, such as China last Friday, have cut interest rates to invigorate demand while others, such as Russia and Brazil, have had to hike rates to battle inflation.
The divide is growing starker, forming a basic template for EM investors. Softer oil and commodity prices are subduing inflation in most countries, creating room for easier monetary conditions. Other countries, however, are still struggling with ideosyncratic frailties, preventing them from capitalising on the ebbing EM prices. Read more
Russia’s central bank kept rates on hold on Friday – the 11th month in a row. Is that such a big deal?
Yes, argues Renaissance Capital’s Ivan Tchakarov. It should be cutting rates now. The bank’s doveish tone is all very well, but it should be acting on where it thinks inflation will go, not where it is currently. Read more
It’s official. The Duma has confirmed Vladimir Putin’s pick, Elvira Nabiullina, as Russia’s next central banker with a vote of 360 in support, 20 against and one abstaining.
Nabiullina will be the first female central banker for a G8 country. But for investors the more important question is how dovish she will be when it comes to interest rates and economic growth. Read more
Russia’s consumer spending spree could be ending in tears. A credit-fuelled surge has led households to rack up unprecedented levels of consumer debt – so much so that in 2012 some 80 per cent of new consumer loans (excluding mortgages) are going towards interest on existing debt. This cannot go on.
“In Russia, the macro-economic risks are small,” says Natalia Orlova, chief economist at Alfabank, “But the risks in the banking sector are accumulating. Retail lending is becoming a high-risk segment.” Read more
Russia’s central bank kept its policy interest rates unchanged on Friday morning, as widely expected. But the non-event is worth noticing as it shows the Russian economy moving into its post-election phase – ie, one of slower growth. Read more