Another Russian rate cut?

March 13, 2015

A cashier takes a 500-rouble banknote from a cash register as she serves a customer at the Vinoteka specialised wine and vodka store in Russia's Siberian city of Krasnoyarsk

Russia’s central bank meets having unexpectedly cut its key policy rate in January by 200 basis points to 15 percent, raising a question mark over its independence from political pressure, given inflation rose to a 13-year high of 16.7 percent in February.

Of 21 analysts polled by Reuters this week, 14 expected another cut today. Of those, 11 expected a one-percentage-point reduction to 14 percent, with three expecting a more aggressive cut. The rest predicted no change.

The January cut followed an emergency 6-1/2 point hike in mid-December, prompted by a run on the rouble which took the Russian currency’s value as low as 80 against the dollar. It has since recovered to around 62. The rouble has opened weaker against the dollar this morning.

Turkey’s central bank has also been under notable political pressure to lower interest rates sharply. It has done so more gradually than President Tayyip Erdogan would like, leading to a spat that has played a part in the lira’s slide. Today, it puts out its year-end inflation forecast which will give a guide to scope for further easing.

Kiev expects to receive the first tranche of $5 billion from an International Monetary Fund programme agreed this week which will reach $17.5 billion in total, with $7.5 billion more expected from countries and other multilateral institutions.
It will also begin talks with its bondholders about heavy debt relief which will makes its debt profile look sustainable – a condition for any IMF lending.

Most Ukrainian bonds are trading around half their face value, a reflection of the hefty haircut creditors fear is coming. But there is talk of extending maturities or imposing a moratorium on debt payments for some time instead. Kiev has the added complication of Russia, which has said it will not restructure its $3 billion debt.

As the IMF said on Thursday, efforts to restore financial stability in Ukraine face “exceptionally high” risks from further conflict and creditors who won’t play ball. Given that Moscow has appeared intent on keeping the country unstable, how it reacts to this attempt to stabilize Ukraine’s finances and economy bears close watching.

Greek Prime Minister Alexis Tsipras will be in Brussels for talks with European Commission President Jean-Claude Juncker.
Officials from Athens and its international creditors have held detailed talks this week on the new government’s reform plans. Without those being acceptable to the euro zone, and until their implementation is underway, no bailout money will flow to Greece, leaving it dangerously short of cash.

Greece wants to be allowed to sell more short-term T-bills. The ECB has refused, fearing they will be bought solely by Greek banks who will then present them as collateral for emergency funding which the ECB underpins, thereby breaking the taboo of state monetary financing.

But sources said it has raised the cap on emergency liquidity assistance that Greek banks can draw from the Greek central bank by about 600 million euros, a small increment that keeps the pressure on Athens to strike a political accord.

Central Bank Governor Yannis Stournouras, who insists Greek banks are solvent, will speak in Athens. Standard & Poor’s will review Greece’s credit rating which it cut to “B negative” last month, well into junk territory and just one notch above “highly speculative”.

The mood music is not good. Greek demands that Berlin pay World War Two reparations and Tsipras’ accusation that Germany used legal tricks to avoid paying compensation for the Nazi occupation of his country hardly seem designed to reach an amicable conclusion.

Athens has also retorted angrily to what it sees as belittling remarks by German Finance Minister Wolfgang Schaeuble.
Major world powers have begun talks about a United Nations Security Council resolution to lift U.N. sanctions on Iran if a nuclear agreement is struck with Tehran, a step that could make it harder for the U.S. Congress to undo a deal. The talks between Britain, China, France, Russia and the United States — the five permanent members of the Security Council — plus Germany and Iran, are taking place ahead of difficult negotiations that resume next week over constricting Iran’s nuclear ability.

A revealing overnight spat between London and Washington which criticized Britain’s bid to become a founding member of the Chinese-backed Asian Infrastructure Investment Bank which it believes could challenge the Western-dominated World Bank and Asian Development Bank. Britain’s finance ministry is holding its ground, saying the AIIB could complement work already done in the region by those organizations.

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