viernes, 6 de febrero de 2015

viernes, febrero 06, 2015
Review & Outlook

Putin’s Ruble Gamble

The Kremlin cuts rates despite currency and inflation risks.

Feb. 1, 2015 6:26 p.m. ET
 
   Photo: Getty Images
 

The Russian Central Bank’s surprise decision Friday to cut the policy interest rate to 15% from 17% shows that low oil prices and Western sanctions continue to inflict severe pain on the Russian economy. The cut comes only a month after December’s 6.5 percentage-point increase, but the problems that prompted a string of hikes, from 5.5% a year ago, haven’t abated.

The crisis was precipitated by the plummeting price of oil, on which the commodity-dependent Russian economy depends. American and European sanctions restricting Russians’ access to foreign exchange compound the pressure. The ruble has lost more than half its value against the dollar over the past year, and it slid further immediately after Friday’s announcement.

The central bank claims recent inflation will prove temporary and that financial markets have now stabilized, meaning Russia can afford the risks of a rate cut. We’ll see about that. Inflation rose to 13.1% year-on-year in January from 11.4% in December, and preliminary data released Friday pegged growth in 2014 at 0.6%, down from 1.3% in 2013.

More fundamentally, the Kremlin’s cronyism and corruption have already made the Russian economy a no-go zone. Standard & Poor’s acknowledged what everyone already knew when it downgraded Moscow’s debt to junk last week, and the other two main credit agencies peg it at barely investment grade. More than $150 billion left Russia last year, double the total for 2013.

Capital Economics estimates the bad-loan ratio could increase to as high as 12.5% of total loans from 6.6% today. Were that to happen, banks might require a capital injection of up to $35.6 billion, a sum equal to 5% of GDP, to meet regulatory capital levels. This would come after the falling oil price already deprived the Kremlin of some $180 billion in revenue.

The central bank’s rate cut suggests that Vladimir Putin is desperate to maintain the semblance of a growing economy, whatever the currency and inflation risks. That’s a major gamble—and an opportunity for the West if it will tighten sanctions while Russia continues to press its offensive in Ukraine. Geopolitical gifts don’t often fall into the laps of Western leaders, especially when dealing with ambitious autocrats. This is one to seize.

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