Press

Bloomberg 19.09.2014 Fedor Bizikov's comment "Putin Sanctions at Tipping Point as Markets Fray: Russia Credit"

Putin Sanctions at Tipping Point as Markets Fray: Russia Credit
2014-09-19 07:04:14.811 GMT

Sept. 19 (Bloomberg) -- Russia’s ruble, bonds and stocks
rallied on March 18, a day after the European Union announced
sanctions against the nation as President Vladimir Putin
prepared to annex Ukraine’s Crimean peninsula.
Fast-forward six months and escalating EU and U.S.
penalties and the ruble is at a record low, Russian banks pay
the most on record to gain dollar funding and government bonds
have suffered the biggest losses among emerging markets,
according to data compiled by Bloomberg. The Micex Index of
stocks is down 6 percent from this year’s high on June 24.
The reversal for the ruble is driving up inflation amid the
slowest wage growth in more than three years, while rising
yields have led to the scrapping of nine straight bond auctions,
pressuring government revenue. The consequences are beginning to
feed through to growth, said Ivan Tchakarov at Citigroup Inc.
“Sanctions at present are biting more with regard to
financial markets and less with regard to the real economy,”
Tchakarov, the chief economist at Citigroup in Moscow, said by
e-mail yesterday. “We may see the real impact on the economy
only next year.”
Russia is locked in a standoff with its former Cold War
adversaries, who accuse the Kremlin of supporting rebels in east
Ukraine. While formally blocking a handful of the biggest
companies from foreign debt markets, sanctions have shut out
“everyone” because investors and banks are “very cautious,”
Bob Foresman, head of Barclays Plc in Russia, said Sept. 16.

‘Dead Weight’

The rate on a five-year cross-currency basis swap between
the Russian and U.S. currencies reached negative 242 basis
points on Sept. 16, the most since at least 2006, according to
data compiled by Bloomberg. A negative rate signals traders are
willing to pay a premium to obtain dollar cash flows for rubles.
In a move to calm the markets the central bank will provide
$3 billion a day through foreign currency swaps at a fixed
interest rate, it said Sept. 16. Lenders are hoarding about $20
billion on accounts at the Moscow Exchange’s National Clearing
Centre, Vedomosti reported, citing three unidentified members of
Moscow Exchange FX committee.
“It’s impossible to raise even short money,” Fedor
Bizikov, a money manager at GHP Group in Moscow, by phone
yesterday. Banks are hoarding foreign currency, which is acting
like a “dead weight” in the money market, he said.

Ruble Retreat

Meanwhile, the ruble’s drop is hurting consumers, stoking
inflation even as wage growth slows and pressuring an economy
forecast to expand this year at its slowest rate since 2009.
The ruble has retreated 14 percent in 2014, the worst
performer among 24 emerging markets tracked by Bloomberg after
Argentina’s peso. Yields on government 10-year debt rose 123
basis points since Russia’s incursion into Crimea at the start
of March, the biggest increase among developing countries.
Russian consumer price growth accelerated in August to 7.6
percent, compared with 6.5 percent in December.
“Inflation shows the effect of sanctions” Vladimir
Miklashevsky, a strategist at Danske Bank A/S in Helsinki said
by phone yesterday. “There was no seasonal deflation
whatsoever, not even a hint.”
The currency extended its decline to a record low this week
after Central Bank Chairman Elvira Nabiullina kept interest
rates on hold on Sept. 12. Policymakers had sought to stem the
ruble’s slump with 250 basis points of increases since February.
It traded up 0.2 percent at 38.4135 per dollar at 10:59 a.m. in
Moscow today.

Budget Boost

While the Finance Ministry has canceled nine straight bond
auctions since the crisis deepened in July, citing “unfavorable
market conditions,” the weaker ruble has boosted the budget by
increasing tax inflows from energy and commodity exporters. The
weaker currency has also prevented stocks from deeper declines
by improving earnings prospects for companies with sales abroad.
The U.S. expanded sanctions last week against Russia to
include the country’s largest bank, OAO Sberbank, and energy
companies as well as five state-owned defense and technology
companies, joining the EU in tightening restrictions. A shaky
cease-fire is in place in eastern Ukraine after fighting that
has claimed more than 3,000 lives.
“The companies felt the sanctions first, then the stock
market, then the bonds joined,” Konstantin Artemov, money
manager at Raiffeisen Capital in Moscow, said by e-mail.