Head of the Bank of Russia, Sergey Ignatyev, is translating the Government's anti-crisis riddles into the monetary and crediting regulation language.
Photo: Äìèòðèé Äóõàíèí/Êîììåðñàíòú
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Ignatyev’s Scissors
// Monetary policy toughened, the ruble weakened
The consequences of the meeting Prime Minister Vladimir Putin held with economic ministers, bankers and heads of law enforcement agencies have turned out really surprising. In the morning the Bank of Russia demonstratively lowered the ruble exchange rate against the basket of currencies by 30 kopecks, and increased refinancing rate to 12% in the evening. Experts say they are unable to predict the Central Bank’s further actions: toughening the monetary and credit policy and simultaneous liquidity injections in banks have nothing to do with their forecasts.
Head of the Bank of Russia Sergey Ignatyev confirmed yesterday that the main criterion of the Central Bank’s successful head is an ability to act unpredictable in the market. After the meeting with Prime Minister Vladimir Putin, where heads of big banks, ministers and chiefs of law enforcement agencies were present, Mr Ignatyev sent a clear message that the Bank of Russia agrees with a possible gradual devaluation of the Russian ruble. That is why no one was surprised at the Central Bank’s actions, which agreed to support the ruble against the basket of currencies ($0,55+ˆ45) at the new, lowered level at the Moscow Interbank Stock Exchange auctions. As a result, both the dollar and the euro rose: the ruble’s official rate totals 27.33 rbl./$ and 34.57 rbl./ˆ; the ruble fell against the basket by 30 kopecks. Later the Central Bank explained to Reuters that the national currency’s “technical fluctuation corridor” was expanded by 30 kopecks in both directions. In fact it means that the Bank of Russia guarantees: the ruble will not fall against the two currencies below today's level, but can rise against the basket by 60 kopecks. These game rules, allowing the Central Bank to frighten off speculators with rate fluctuations, are well-known in the market, and no one expected the Central Bank to take further steps.
Nevertheless, they followed. At 8 p.m. the press service of the Bank of Russia announced the first (since the beginning of the crisis) monetary and credit policy toughening. The refinancing rate was increased from 11% to 12%; also, the Bank of Russia increased the price of other liquidity granting tools by 1%, and the rate of currency swaps’ ruble part, through which non-residents took away some of their ruble actives from the Russian Federation in October, 2008 (since November this practice has been almost eliminated by the Central Bank), was increased from 9% to 12%. In any other situation the Central Bank’s actions would be endorsed by experts, but nobody is able to explain yesterday's actions of the monetary regulator: they contradict the logic of everything Sergey Ignatyev's subordinates did earlier.
The official explanation of the Central Bank’s actions concerning the rate and the expansion of the ruble fluctuation corridor boils down to the necessity to struggle against capital outflows, but it was mentioned for the first time, and experts doubt it. “I do not understand why do anything about the refinancing rate. To boost internal profitableness, to struggle against outflows, it would be enough to increase the rates of banks’ deposits in the Central Bank and the Bank of Russia’s bonds. The only rational explanation is that the Central Bank tries to pretend that we have not forgotten about inflation and we are countering it. Though it is pointless,” Oleg Solntsev from the Center for Macroeconomic Analysis and Short-Term Forecasting says. According to him, “the corridor expansion means a change of rate policy priorities — the policy of strengthening the ruble is no longer relevant.” And Yuliya Tseplyaeva from Merrill Lynch says, “The Central Bank contradicts itself. It is very strange to see a situation when reserve requirements are decreased and rates rise. It is very strange when big funds are spent on ruble support, and then the rate is shifted by 1% against the basket.” Both experts think that the expansion of the ruble fluctuation corridor will not lower the pressure upon the national currency. “No one expects it to weaken pressure upon the ruble,” Ms Tseplyaeva believes.
The increase of the refinancing rate means, first of all, a growth of credit rates with Russian banks – it need be reminded that all actions of the Government and the Central Bank in financial sphere since August, which envisioned trillions’ injections in the banking system, have been aimed at credits’ becoming as cheap as possible and as affordable as possible. “The only logic, which is in line with this situation, is an increase in profitableness in the country to attract more capital, and the risk of stagflation. But it has nothing to do with economic reality,” Dmitry Belousov from the Center for Macroeconomic Analysis and Short-Term Forecasting says. “Rate increase only stimulates the credit activity’s going down. It is a strong move to reduce the efficiency of an anti-recessionary package when the cure appears worse than the illness. Thanks to such efforts, we can receive a real decrease in growth.” Yuliya Tseplyaeva from Merrill Lynch explains it with the nervous atmosphere in which the Central Bank operates. “The Central Bank acts surprisingly. I have an impression that the Central Bank is confused, it has too many ideas, which contradict each other,” she says.
The Central Bank’s actions to toughen the credit and monetary policy and weaken the ruble would be logical, if it was necessary to address post-crisis developments in the Russian economy. Nevertheless, it is simply early to counter a possible wave of inflation and the growth of risks in the credit market, which could be prompted by effective state aid. In the Center for Macroeconomic Analysis and Short-Term Forecasting, they say that the situation is exactly the opposite: the problem is, in their opinion, that economy hasn’t received the funds yet. It need be noted that despite a relatively high liquidity level in the banking system (some 1 trillion rubles), Russian companies will have to make considerable tax payments at the end of the month. And in case oil prices go down, another crisis wave will roll in the Russian economy. Yesterday’s Troika Dialog review touched upon the prospect of the Urals price falling to $50 per barrel. Such a scenario suggests current operations and the budget’s deficiency in 2009 already — and, accordingly, compelled ruble rate devaluation. According to HSBS forecasts, given the current oil prices in the fourth quarter, current operations will remain in the proficiency of $7.5 billion, according to Capital Renaissance forecasts — $10 billion.
Anyway, experts are unable to predict what the Bank of Russia is going to do in the future: with equal probability, the Central Bank may both quickly strengthen the ruble and leave it at the present level. However, financial authorities’ anti-crisis policy is likely to be changed. It need be reminded that on Monday Deputy Prime Minister Alexey Kudrin announced cancellation of the Finance Ministry’s budgetary deposit auctions. This measure would also comply with the end of the crisis — in case the crisis was really going to come to an end.
Dmitry Butrin, Alexei Shapovalov
All the Article in Russian as of Nov. 12, 2008
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