Russian stock market could remain volatile in 2013 – CBR

File Photo of Outdoor Electronic Sign with Russian Exchange Data

MOSCOW. Jan 17 (Interfax) – The development of the Russian stock market this year will to a significant degree be determined by the influence of external conditions, and high volatility is likely to continue, according to a review of the financial market in 2012 worked up by the Central Bank of Russia’s research and information department.

This year could see a continued low level of economic activity around the world, which will put a damper on the dynamics of world prices for primary commodities and financial assets, as well as economic growth in Russia. It is expected that stimulative monetary-lending policy to continue around the world, with in combination with the already existing programs of U.S. and European regulators will provide support to asset prices on developed and developing markets.

“The mixed character of the impact of these identified factors will facilitate the retention of the uncertainty of price expectations on the global capital market and, consequently, high volatility of quotations on the Russian stock market,” the review says.

With the retention of that uncertainty on the Russian stock market, lending organizations and most types of non-banking financial institutions will continue to apply to the capital market primarily conservative investment strategies, the CBR experts predict.

And considering the persisting uncertainty for the prospects of world economic development in 2013 “somewhat of an increase in the volatility of the ruble exchange rate is possible given an insignificant decrease in the average annual indicators of the nominal ruble exchange rate against the main foreign currencies under the influence of inflationary processes,” the review says.

The CBR will continue to implement exchange rate policy without obstructing the formation of trends in the dynamics of the ruble rate conditioned by the effect of macroeconomic factors, and without setting any kind of fixed restrictions on the level of that rate. The bank will continue to gradually increase the flexibility of exchange rate formation, cutting the volume of intervention on the domestic currency market, but maintaining the possibility of influencing rate dynamics to smooth out sharp fluctuations in the ruble rate. “As a result, the influence of Central Bank exchange rate policy on the formation of the state of affairs on the domestic currency market will be weakened, and the significance of market factors will increase,” the bank said.

The situation on the Russian money market this year will be determined most of all by the liquidity of the banking sector and rates on CBR operations. With the realization of the basic scenario, growth of a structural shortage of bank liquidity could continue. In conditions of rising bank demand for ruble liquidity, the CBR will expand the refinancing of credit organizations (according to the basic scenario – 0.6 trillion rubles). Money market rates for most of the year will remain on the upper plane of the corridor of interest rates on CBR operations.

The situation on the domestic corporate bond market will be affected by the persistence of high external risks associated mainly with a slowdown in world economic activity and the continuation of the Eurozone debt crisis. These factors, and the possible weakening of the national currency, could lead to somewhat of a decrease in the investment attractiveness of corporate bonds. On the other hand, the continuation of the qualitative easing program abroad could facilitate increased inclination among investors toward risk and a flow of their money to the Russian corporate bond market.

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