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. Last Updated: 07/27/2016

Vote Fears Send Rates Soaring

Money markets have been skittish just days ahead of the presidential ballot, sending overnight lending rates to levels unseen since last summer's banking crisis and eating into banks' liquidity.


Banks are scrambling to come up with rubles after the Central Bank announced a surprise increase in reserve deposits requirements, a move aimed at funneling 5 trillion rubles (about $1 billion) into state coffers as mandated by parliament and the government last week.


But the high overnight rates are caused by short-term factors and have probably hit a ceiling, one analyst said, doubting that the current situation would mushroom into any sort of full-fledged crisis.


Overnight lending rates soared Monday to 120 percent to 150 percent from an early 35 percent to 60 percent, and on Tuesday climbed to around 200 percent, one analyst said. The Associated Press reported rates as high as 250 percent.


"With the elections coming, the markets are in a fever," the AP quoted Vladimir Gusinsky, president of the Most financial group, as saying Tuesday.


Markets and most businesses were closed Wednesday for Russia's Independence Day.


"A 200 percent overnight rate is big trouble for the economy itself," said Andrei Yashchenko, fixed income and banking analyst at United City Bank. "Even the largest banks are in trouble ... I'm not even talking about the medium and smaller banks."


However, Yashchenko added that the structural problems of high interbank debts that sent rates up to 1,000 percent last August had led banks to be more cautious, "so I don't think there will be [a repeat of] such a crisis."


Yashchenko said rates have probably hit a ceiling at around 220 percent and should gradually taper off after that.


The current jump in credit rates is "mostly related to the increased depository reserve requirements" by the Central Bank, Yashchenko said.


Central Bank chairman Sergei Dubinin said Monday that to help fund a 5 trillion ruble transfer of bank profits to the federal budget, commercial banks must now reserve 20 percent rather than 18 percent of 30-day ruble deposits -- effectively canceling out a cut in the rates effective May 1.


Making it harder for banks to scare up extra funds are depositors who have withdrawn rubles recently in favor of the safer dollar, while banks have largely been unable to attract fresh deposits, economists have said. But banks buying rubles in preparation for Thursday's massive 12-trillion ruble treasury bill auction also helps explain the leap in overnight lending rates, Yashchenko said.