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. Last Updated: 07/27/2016

Markets Battle With Ruble Fears, Aid




The market would remain weak as long as the uncertainty about the IMF loan remained.


Russia's financial markets continued its slide Tuesday on widespread fears of a possible ruble devaluation and uncertainty over a support loan package from the International Monetary Fund to boost the ailing economy.


The Moscow Times Index of 50 leading stocks fell 2.6 percent on thin volumes of $25 million. The index closed at 111.78 points Tuesday.


The index fell 7 percent Monday.


On the bond markets, yields dipped below the government's official refinancing rates of 80 percent. Yields on the government's one-year benchmark bond averaged 77 percent, down from 82 percent Monday. Short-term T-bills were trading at 69 percent.


Gary Kinsey, equities analyst at investment bank Brunswick Warburg, said the Central Bank may be forced to raise key interest rates again. Refinancing rates, which serve as an informal cap on yields, were hiked from 60 to 80 percent last Friday.


The markets have largely ignored the release of $670 million tranche by the IMF last week. Brokers said the market would remain volatile until a larger credit facility in the form of a multibillion dollar loan is extended to boost Central Bank reserves.


"Low volumes, low liquidity," said Peter Kruty, a trader with Fleming UCB. "People are just waiting for the IMF money to come through."


"Sentiment is based now almost entirely on the probability, the size and the timing of the IMF package," said Bill Browder, head of Hermitage Capital, a major equity fund.


Anatoly Chubais, the Kremlin's liaison man with Western lending institutions, said, "We are heading towards a resolution of this issue [IMF package] within a very short time-frame, within a month."


The IMF has said any new loan will depend on the implementation of the austerity measures announced last week, designed to stabilize the Russian markets.


The anti-crisis program must get through the Communist-dominated State Duma, or the lower house of parliament.


Yeltsin has urged the Duma to "hurry up" with the bills. Deputies have been up in arms about the 40 billion ruble ($6.5 billion) spending cuts envisioned in the package.


Prime Minister Sergei Kiriyenko was to appear before parliament Wednesday to answer questions about the austerity plan.


Tom Brackenbury, an analyst at Rinaco Plus brokerage, said the market would remain weak as long as the uncertainty about the loan remained.


"It's difficult to imagine anyone buying anything until somebody knows what's going on IMF-wise, currency-wise," he said, adding that "the IMF have done a pretty poor job" in cooling the market down.


But Brunswick Warburg's Kinsey said, "if it [IMF aid package] does come in the next week or so, or if it's more than $10 billion, the market could react positively, otherwise I think it's really in the market already," he said.


Finance Minister Mikhail Zadornov added to the market gloom when he told the State Duma's budget committee Monday that "if tax collection does not improve by a third [in coming months], there will be a devaluation."


Russian equities have plunged more than 60 percent since the start of the year -- initially due to the Asian financial crisis -- but in recent months because of investors fears over the government's ability to fund the gaping hole in its budget.


On Tuesday, LUKoil closed down 1.18 percent, Mosenergo lost 3.85 percent and UES dropped 5.02 percent.


Traders said the market would also watch the government's weekly bond auction Wednesday.