Russian rates to fall as rouble rallies

April 30, 2015

German Chancellor Merkel and Greek Prime Minister Tsipras leave after addressing news conference in Berlin

Russia’s central bank is expected to cut interest rates today, following a sharp rally in the rouble in tandem with oil’s recovery.

All 23 economists surveyed by Reuters predicted it would cut the key rate from 14 percent, with a median pointing to a full percentage point being lopped and 10 analysts expecting a larger cut.

Having whacked up rates by an eye-watering 6.5 percentage points in December as the rouble went into freefall, the central bank cut at its last two meetings and has signalled it views recession as a bigger worry than high inflation.

Since the bank last met on March 13, the rouble has rallied some 20 percent against the dollar, and the pace at which inflation has been rising has slowed, though to put that into perspective it was running at nearly 17 percent last month.

The central bank has invited Finance Minister Anton Siluanov and Economy Minister Alexei Ulyukayev to its meeting. Neither have a vote but both have argued in favour of lower rates and some analysts say their presence at the meeting could sway the board to opt for a sharper rate cut.

Athens is presenting a list of reforms for legislation to show it is serious about implementing its promises, including some privatisations and tax steps, which will be assessed by technical-level teams from Greece and its lenders today.

An opinion poll showed three quarters of Greeks want their government to make a deal to unlock aid at any cost and do not favour early elections or a referendum if talks hit an impasse, suggesting Prime Minister Alexis Tsipras now faces heavy pressure both at home and from the euro zone to find a way through.

Greece’s government is considering selling stakes in its two largest ports as a concession to unlock bailout funds, officials said last night. It had sought to cancel state sell-offs, calling it a “crime” to sell off strategic national assets.

The reasons to expect an accord before Greece runs out of money are starting to stack up. Tsipras has sidelined his abrasive finance minister from the negotiating process and declared he wants an agreement by May 9.

On top of privatizations, other concessions have been offered by Athens on tax collection though on labour reform and cutting Greece’s huge pensions bill there seems to be no meeting of minds. The Eurogroup of euro zone finance ministers meets next on May 11 and Greece is due to repay the IMF 750 million euros a day later, a bill it is not clear it can meet.

The lenders have said a partial disbursement of frozen aid is not possible until Greece has presented and implemented a full list of reforms. Athens is hoping an initial deal will prompt the European Central Bank to loosen restrictions that prevent Greek banks from buying more Treasury bills. To get that it will almost certainly have to move further than it has so far.

Ratings agency Moody’s upped the pressure by cutting Greece’s credit rating deeper into junk territory last night due to uncertainty over whether it will be able to reach a deal in time to meet upcoming debt repayments.

Euro zone inflation data will make for interesting reading now that the ECB’s money-printing scheme is in full swing. The ECB intends to buy more than 1 trillion euros of assets over 18 months to push inflation up to its target of close to but below 2 percent.

After German inflation came in above forecast at 0.3 percent on Wednesday, the chances are that the forecast of a zero reading for the currency bloc as a whole may be exceeded.

Spain is expected to post strong quarterly growth of 0.8 percent while inflation remains negative at -0.7 percent. The government will also give updated economic forecasts for 2015. Earlier this week, Prime Minister Mariano Rajoy said the economy would grow 2.9 percent this year and next, creating 500,000 jobs. Whether that will secure him an election win in November, given unemployment is still running at 24 percent, remains to be seen.

Italian Prime Minister Matteo Renzi has put his electoral reforms to confidence votes in parliament in a sign of his determination to overhaul the political system. Yesterday, Renzi won a first vote by 352 votes to 207 with around 30 members of his centre-left PD abstaining. Two more will take place today. If they all pass, the reform will become law. But if Renzi loses any of the three ballots, he will have to resign. That looks highly unlikely.

PD party rebels look set to shun the ballots rather than vote against their own government and opposition parties know that Renzi’s popularity means an early election would probably lead to his swift return to power.

With a week until election day, the latest poll puts Britain’s Conservatives on 35 percent, Labour on 34. Consumer morale held steady at its highest level in more than 12 years in April, according to researchers GfK.

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