Saturday, December 20, 2014

20/12/2014: Russia's Black Monday: The Debate is On


It is a hazardous task to attempt to explain fast spikes in Forex markets pressures during the ongoing currency crises. And hence few attempt. One very interesting - and I suspect rather correct - try is by Sergei Guriev http://www.project-syndicate.org/commentary/ruble-collapse-corporate-debt-by-sergei-guriev-2014-12.

Guriev directly links the Russian Ruble's Black Monday (and I would add Black Tuesday too) on Rosneft debt redemption that takes place this weekend.

He is right on all points, including, probably, the suspicion that CBR delayed rate hike to allow Rosneft debt deal to go through, with a caveat.

The hike of November 11th (see my note on this here: http://trueeconomics.blogspot.ie/2014/12/11122014-central-bank-of-russia-good.html) was weak. Weak by all fundamentals metrics, save one and a very important one: CBR knew at the hike time that the industrial activity was tanking and investment was starting to lose steam (if anaemic growth in investment to-date can be called that). So CBR delayed hike most likely for two reasons:

  1. Rosneft deal; and
  2. The fact that raising rates are hammering the economy (Governor Nabiullina clearly stated as much on several previous occasions and Professor Guriev might be reading too much into the statement by the Minister of Economy, Alexey Ulyukaev - Ulyukaev is locked into a long-term battle with CBR - see here: http://trueeconomics.blogspot.ie/2014/09/1292014-bank-of-russia-leaves-rates.html In fact, earlier this year, the Ministry was openly critical of CBR for the Bank lifting rates without 'coordination' with the Ministry).
Another point ignored by Guriev (predictably for an economist) is the dynamics-driven algos and shorts rebalancing that most likely came quickly into the market late Monday and continued to hammer Ruble on Tuesday.

But, on the net, the point that Rosneft debt is costing Russia dearly is on the money. And it will continue doing so into 2015 when the company debt redemptions are likely to hit 1/5th of the total corporate and banks' redemptions.

Do note, more granular analysis of the redemptions, putting to challenge some of Guriev's statements, is here: http://trueeconomics.blogspot.ie/2014/12/19122014-plight-of-russian-banks.html
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