The dip in the price of gold in early autumn failed to do much to dampen demand from the central banks. In fact, their buying rocketed. This from the FT’s Jack Farchy:
Central banks made their largest purchases of gold in decades in the third quarter, as a sharp drop in prices in September accelerated the shift to bullion as a means of diversification.
The scale of the buying, at 148.4 tonnes on a net basis, was far bigger than previously disclosed, surprising some traders.
The report by the World Gold Council, industry lobbyists, on which the story is based confirms a few of Money Supply’s earlier suspicions about why central bank demand would to remain strong, or even rise, on the back of the dip in price. Read more
Against expectations, Bank Rossii held rates on Friday, though it did raise reserve requirements. Following similar moves for February and March, Russia’s central bank raised reserve requirements by a percentage point for banks’ liabilities to non-residents (charted, right) and half a point for other liabilities. The proportions of deposits banks need to keep with the central bank now stand at 5.5 per cent and 4 per cent, respectively.
While there are signs that inflation is rising less quickly than previously, prices have still risen 3.6 per cent since the start of the year according to weekly data, making the annual 6-7 per cent target tough to achieve. Most view further rate rises as likely. Read more
Inflation is beginning to slow in Russia, after one rise in bank reserve requirements in January and another one in February – the latter complete with the rate rise markets had been expecting for months.
A Reuters news flash tells us inflation slowed to 0.1 per cent in the week to February 28, bringing the price increase for the month as a whole in at 0.8 per cent, under expectations. Annual inflation has been rising steadily from a low of 5.49 per cent in July of last year, standing at 9.58 per cent at the end of January. The latest data should mean annual inflation to February fell slightly to 9.56 per cent.
High inflation has prompted the first rate rise in Russia since the financial crisis. All rates are affected by the quarter-point rise, including the deposit rate and the benchmark refinancing rate. This has surprised analysts. A Reuters poll, for example, predicted a 25bp rise in the deposit rate, with about half of respondents expecting a simultaneous rise in reserve requirements. The majority had expected the refinancing rate to be left on hold.
The rate rise, which will take the refi rate to 8 per cent, is effective February 28. Reserve requirements – raised at the end of last month – will be increased by the same amounts as last time: i.e. 1 percentage point for corporates, and 50bp for individuals and other. That move will be effective March 1. Use the dropdown below to explore historical reserve requirements (note: the most recent changes are entered by announcement date rather than effective date). Read more
Russia’s finance minister has indicated a preference for a hike in interest rates when the board meets on Friday. Governments are often pro-growth, with central banks taking the unpopular – and sometimes anti-growth – decisions needed to fight inflation. Not in this case. “The central bank is independent, but I think it is the time to take additional measures,” Russia’s finance minister Alexei Kudrin told the BBC, Reuters news wire reports.
Bank Rossii surprised markets (and us) in January by following bullish hints with a raise in reserve requirements instead of a rate rise. Prices have risen 2.9 per cent in the first six weeks of 2011: at that rate, annual inflation for 2011 would be 25 per cent. Read more
Russia has surprised markets by holding rates after a number of bullish hints in recent months. The central bank has, however, raised reserve requirements, joining a long list of emerging markets adopting this as their favoured tightening tool.
Bank Rossii is targeting hot money with the move: it has raised the reserve ratio more sharply for corporate non-residents than for ruble-only, individual or other types of liability. From February 1, banks will have to store 3.5 per cent of non-resident rouble and forex corporate liabilities with the central bank, a 1 percentage point increase. Other types of bank liability – such as those in roubles from individuals – will be raised half a point to 3 per cent. Use the dropdown on the chart below to explore historical reserve requirements at the Bank of Russia.
Bank Rossii chairman Sergei Ignatiev has told reporters that rates might be raised at next Monday’s meeting, Bloomberg reports. Mr Ignatiev hinted in December that rising inflation might lead to a rate rise in the first quarter, and that he was not scared of a stronger ruble.
A rise in the discount rate would be the first since the financial crisis, taking interest rates from their near-year-long record low of 7.75 per cent. Read more