So you think WE have problems?
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TELEGRAPH 12.11.08
Russia calls in police as rouble crisis escalates (print version)
Russia lifts rates to 12pc to save rouble as crisis deepens
Russia's central bank has raised interest rates a full percentage
point to 12pc to prevent a collapse of the rouble following a day of
mayhem on the Moscow markets, prompting concerns that the financial
crisis may be spiralling out of control.
By Ambrose Evans-Pritchard
The surprise move last night came after the authorities had spent
$7bn of foreign reserves in a matter of hours trying to defend the
currency, at a lower level. The central bank has now spent $84bn of
its reserves over the last month.
"The devaluation has begun," said Lars Christensen, Russia strategist
at Danske Bank.
"The rouble has fallen out of its basket against the euro and the
dollar. Russia is facing a serious confidence crisis and this could
set off a self-fulfilling panic. What is clear is that economy is
slowing drastically.
Chris Weafer, strategist at UralSib, said there were echoes of the
1998 crisis. "If people lose confidence, we could have a massive run
on the banks as we saw twice in the nineties: then the game is up,''
he told Bloomberg.
Russia is battening down the hatches for a deep slump. It has
downgraded is oil forecast to $50 a barrel next year, a level that
will play havoc with the state finances. Expecting trouble, the
Kremlin has mobilised the police to crush dissent.
"Anti-crisis groups have been set up in the regions to intercept any
early indications of destabilisation,
"If anyone tries to exploit the financial crisis, the authorities
should bring criminal charges. We don't want a return to the 1990s
when everything was seething," he said.
Donald Jensen, an adviser to the US government, told a Russia
Foundation meeting yesterday that the credit crunch posed a grave
threat to the Kremlin. "This is pushing the Putin regime towards a
crisis. Salaries are being held back and factories are being shut
down in major cities. The regime cannot address all the demands that
it is faced with," he said.
The Moscow bourse was closed after the RTS index plunged 10pc, down
over 70pc from its peak. Credit default swaps measuring bankruptcy
risk on Russian debt jumped 150 basis points to 630 as foreign
investors scrambled to hedge exposure.
"There is massive deleveraging going on in Russia on all fronts,"
said Luis Costa, an economist at Commerzbank.
Mr Costa said the oil slide had led to an abrupt change in the
fortunes of Russia, which relies on commodities for 80pc of its
foreign earnings. "They are not going to have a current account
surplus any longer. They could swing from plus 7pc of GDP to minus
2pc to 3pc next year, which is quite a reversal," he said.
Any devaluation is a political risk given fresh memories of the 1998
crisis, when many Russians lost their savings. The state-owned giant
Sberbank has lost 2.5pc of its deposits over the last month, while
smaller lenders have suffered a classic bank run. Fitch Ratings
downgraded twelve banks yesterday, warning of an "increased
likelihood of a deterioration in the government's ability to provide
support".
Russia still has the world's third biggest foreign reserves, but
these have shrunk from $598bn to under $480bn due to capital flight
since the Georgia war in August. Crucially, Russia's banks, oil
producers, miners, and steel companies have amassed $510bn of foreign
debt, mostly in short-term loans.
Kingsmill Bond, from Russia's investment bank Troika Dialog, said the
Kremlin has committed $280bn to shore up these companies. While it
still has some firepower left, it cannot weather a long slump in oil
prices.
If crude drops to around $50 a barrel, and stays there, the combined
losses on Russia's current and capital accounts will reach $110bn a
year. "We estimate that the rouble could drop by around 30pc", he said.
Wednesday, 12 November 2008
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