Putin Envoy Says Recession Should Spur Easing: Russia Overnight

(Bloomberg – bloomberg.com – Halia Pavliva – April 16, 2013) Russia is probably already in a recession and monetary policy should be eased to ignite growth, said Ksenia Yudaeva, President Vladimir Putin’s representative to the Group of 20 nations.

“The first two months were really bad, external demand change had an impact on Russia and this is why we’ve seen such a significant slowdown in the Russian economy,” Yudaeva said in an interview yesterday at Bloomberg’s headquarters in New York. “There is no pressure on the central bank, but some monetary easing is possible.”

Putin has called for a plan to revive Russia’s flagging economy after policy makers cut the growth forecast for 2013 to 2.4 percent amid declining oil and metals prices. The economy, which averaged about 7 percent growth during Putin’s first two terms, expanded 2.1 percent in the fourth quarter, the least since a contraction in 2009. The Bloomberg Russia-US Equity Index (RUS14BN) rallied 0.7 percent from a five-month low yesterday, and RTS Index futures gained 0.8 percent to 133,090 in U.S. hours.

While Economy Minister Andrei Belousov said last week that Russia could slide into recession without stimulus, the central bank has kept key interest rates unchanged since September as inflation remains above target at 7 percent.

“I don’t think massive cuts are possible, given that inflation is very high,” said Yudaeva, who is in the U.S. for this week’s G-20 meeting in Washington.

The central bank “should do more” to slow consumer lending rates, she said.”Cooling the consumer finance market, because it drives up interest rates on deposits and company loans, can be even more effective than just some decrease in the central bank rates.”

‘Already in Recession’

Russia’s $2 trillion economy probably grew 1.1 percent in the first quarter, Deputy Economy Minister Andrei Klepach said last week. The central bank cut some interest rates on less- frequently used credit instruments this month, while leaving the refinancing rate at 8.25 percent.

“Frankly speaking, Russia probably already is in recession,” Yudaeva said.

The Bloomberg Russia-US gauge of the most-traded Russian stocks in the U.S. climbed to 91.02 yesterday, led by a 3.5 percent jump in American depositary receipts of OAO Lukoil (LUKOY), the nation’s biggest independent oil producer.

The RTS Volatility Index, which measures expected swings in the stock futures, dropped 0.3 percent, while the Market Vectors Russia ETF (RSX), the largest exchange-traded fund dedicated to Russian equities, climbed 1 percent to $26.21, rising for the first time in four days.

Rostelecom Slides

OAO Rostelecom (ROSYY), the country’s biggest fixed-line phone operator, retreated 5.6 percent to $20.45 in New York, the lowest close since June 12. Trading volumes were more than three times the daily average over the past three months. Rostelecom also slid 6 percent in London, the steepest one-day drop since July 23.

The sale of shares by stock option program participants may be behind the declines, Luis Saenz, head of equity sales and trading at BCS Financial Group in London, wrote in an e-mail to clients yesterday.

Lukoil rose 3.5 percent to $60.83 in the biggest advance since Sept. 14.

The global economy needs to improve before Russia’s can, said Yudaeva, the nation’s G-20 Sherpa. The International Monetary Fund trimmed its global growth forecast to 3.3 percent, according to a report yesterday, from a January projection of 3.5 percent.

China Concern

Commodities, which made up more than 80 percent of Russia’s export revenue in 2011, are down 5.7 percent this year, according to the Standard & Poor’s GSCI index of 24 raw materials. The index sank 2.3 percent April 15 after China, the world’s second-largest crude consumer, reported slowing economic growth for the first quarter.

“China is a big concern,” Yudaeva said. “We don’t fully understand why the Chinese economy is slowing down and what can be done.”

Crude for May delivery was little changed at $88.72 a barrel on the New York Mercantile Exchange yesterday, while Brent oil for June settlement dropped 0.7 percent to $99.91 a barrel on London’s ICE Futures Europe exchange. Urals crude, Russia’s major export blend, rose less than 0.1 percent to $96.70, climbing for first time in five days.

Article ©2013 BLOOMBERG L.P. ALL RIGHTS RESERVED. Article also appeared at: www.bloomberg.com/news/2013-04-17/putin-envoy-says-recession-should-spur-easing-russia-overnight.html