MOSCOW BLOG: Russia passes the bottom of crisis

By bne IntelliNews October 30, 2008

bne -

Russia's banking sector creaked back into life this week as it appears the worst of the crisis has passed.

The RTS stock index is already up 31% in two days from a five-year low of 550 hit on October 28. On Thursday, October 30, the RTS had recovered to 760.

Investors were buoyed by the results of US third-quarter GDP figures, which showed the US economy had shrunk by just 0.3%, less than the consensus 0.5% many were expecting. This means the US will almost certainly fall into recession, but suggests the contraction won't be as bad as some feared. In other data, US housing sales were up 5% as some buyers consider prices to have fallen far enough to make buying attractive again.

In Russia, the creeping return of confidence was most apparent in the money markets, where cash is beginning to circulate again as the Russian government's rescue package starts having an effect.

Equity traders report that they can borrow overnight again and the costs are falling from 15% to about 10-12%. Likewise, overnight rates on the interbank market are falling for all Russian institutions. The top 120 banks are able to raise unsecured finance from the central bank at 10% and other entities can borrow at 10% from Rusagribank with equity collateral. "This is hugely supportive especially if the government is buying the equity market and underwriting the collateral," says Julian Rimmer a trader with Uralsib in his blog. "For the first time since August, Russian corporates can raise cash from sources other than the equity market. The bond market, albeit just at the top-end, is starting to shift into first gear."

The price of oil neared $70 in Asian trade on Thursday, October 30 as the dollar retreated from its recent highs and signs of strength in overseas markets tempered some concerns about waning demand. The price will be further supported next year because many Russian oil companies have been forced to slash their capital expenditure programmes and analysts are predicting a 2-5% fall in production in 2009. These falls come on the back of an Opec decision earlier this month to cut production by about 1.5m barrels per day. Analysts believe that the Middle Eastern oil producers need to keep prices at about $70 to balance their own budgets; Russia's budget is also balanced at this level.

Despite these first green shoots of life, the situation remains very fragile and external shocks could still destabilise the emerging equilibrium. If this crisis plays out similar to the aftermath of the 1998 crisis, the RTS will remain stuck at around the 700-800 level for the rest of the year and climb again modestly in the first quarter of next year. But the annual sell-off in the run-up to Easter could be made a lot worse as companies' end-of-year results are digested and there is the possibility of another bout of instability then.


Send comments to The Editor


Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss