MOSCOW — The International Monetary Fund cut its 2014 economic growth forecast for Russia by two-thirds on Tuesday and warned that downside risks remain on geopolitical uncertainties after Moscow's takeover of Crimea.
The Fund cut its gross domestic product (GDP) growth forecast to 1.3 percent from an earlier 2 percent, revising down its estimates for the third time in a row, from an initial 3 percent.
"The balance of risks (for Russia and neighbors) remains to the downside, considering rising geopolitical uncertainties following the takeover of the Crimea by Russia, tightening financial conditions, and volatile capital flows," the Fund said in a report.
"Intensification of sanctions and countersanctions could affect trade flows and financial assets."
The IMF forecast follows gloomier estimates from the World Bank of the likely economic damage from the Kremlin's standoff with the West over Ukraine. The bank warned the Russian economy may contract by 1.8 percent if the conflict escalates and grow by 1.1 percent at best.
The IMF is also more optimistic in its GDP growth estimates than the Russian Economy Ministry, which said earlier this month that economic expansion may come "significantly" below 1 percent if current trends continue.
The United States and European Union have imposed asset freezes and visa bans on a group of Russians and threatened economic sanctions if Moscow escalates the crisis further. The standoff is estimated to result in up to $70 billion in capital flight from Russia in the first quarter.
The World Bank says capital outflow may come to $150 billion if the crisis deepens. The IMF has not provided estimates of how much money could flee Russia this year.
The Fund said Russia's slowdown would have a spillover effect on former Soviet republics such as Kazakhstan, Armenia or Tajikistan.
"A slowdown in Russia owing to unsettled conditions would affect the Caucasus and Central Asia through both real sector and financial channels, particularly if energy supply is disrupted and oil and gas prices rise," the Fund said.
NEED TO ANCHOR INFLATION
Consumer price inflation is likely to average 5.8 percent during the year, the IMF said, and is likely to remain above 5 percent, the midpoint of Russia's target range, by year-end.
The central bank said last month that inflation is likely to come at between 5 and 6 percent by year-end, within its 3.5-6.5 percent target range but above the midpoint.
The ruble's weakening was the main reason for the rise in annual inflation last month to 6.9 percent from 6.2 percent a month earlier.
"Russia should continue to rely on exchange rate flexibility to facilitate adjustments while avoiding excessive volatility, keep monetary policy focused on anchoring inflation, and maintain a broadly neutral structural fiscal policy," the Fund said.
The Russian Central Bank was forced in March to raise its key lending rate by 150 basis points to 7 percent to stem off capital flight after Russia asserted its right to intervene militarily in Ukraine.
The bank also introduced temporary changes to its rules that enable larger forex market interventions. It expended some $25 billion to support the ruble in March, putting on hold plans to make the ruble more flexible.
Last week, Central Bank Governor Elvira Nabiullina said the bank did not plan to cut its key lending rate until its June meeting at the earliest, as inflation concerns remain.
The ruble is down 7 percent against the dollar.
Wall Street Journal 8. April 2014
Volvo trucks puts Russian tank deal on ice
STOCKHOLM— Volvo AB said on Tuesday that it has put a budding partnership with Russian battle-tank maker Uralvagonzavod "on ice" as the Swedish truck maker takes stock of the political crisis in Ukraine after Russia's annexation of Crimea.
Volvo's decision comes amid escalating tensions between Ukraine and Russia. Pro-Moscow protesters occupying government buildings in eastern Ukraine called Monday for their own referendum on independence, a flare-up that spurred a renewed diplomatic push and a fresh warning by the U.S. against any Russian escalation.
The U.S. and the EU have implemented sanctions against Russia after its takeover of Ukraine's Crimea region last month.
Volvo said it is waiting to consult with the French authorities before continuing discussions with Uralvagonzavod about their project to make an infantry combat vehicle. The partnership involves the Swedish company's French unit Renault Trucks Defense.
Developments in Ukraine over the past few weeks constituted an "uncertainty factor," Volvo spokeswoman Karin Wik said.
"We haven't suspended the cooperation, but it has been postponed," Ms Wik said.
LONDON, April 8 (Reuters) - Brent crude rose above $106 a barrel on Tuesday as fresh unrest in eastern Ukraine heightened tensions between Russia and the West, but hopes Libya would soon resume oil exports kept a lid on prices.
The gains came amid a broad retreat in global equity markets and a weakening of the dollar, with investors turning to oil for exposure to global economic growth.
Brent crude for May delivery was up 61 cents at $106.43 a barrel by 1322 GMT. U.S. crude for May rose 76 cents to $101.20 a barrel.
Ukrainian police cleared 70 pro-Moscow protesters occupying a government building in the Russian-speaking industrial heartland in the east of the country as Kiev accused Russia of seeking to dismember the country.
NATO Secretary-General Anders Fogh Rasmussen warned Moscow that if it were to encroach into eastern Ukraine, there would be "grave consequences" for its relationship with the alliance.
Russia is the world's biggest oil producer, and any deep diplomatic rift between Moscow and the West worries investors.
"Any further escalation of the situation would intensify tensions between Russia and the West and could lead to tighter sanctions being imposed on Russia. So far, the market appears to believe this to be unlikely, though that means the price would react all the more strongly if sanctions actually were imposed on the Russian oil and gas sector," analysts at Commerzbank said in a note.
Crude prices dropped on Monday and remained under pressure on Tuesday due to the prospect of additional Libyan supplies after rebels agreed to end gradually their eight-month blockade of oil ports accounting for around 700,000 barrels per day.
"Hiccups can still develop on the way to a full return of supplies from Libya, but this is nonetheless a bearish development," said Olivier Jakob, an analyst at Switzerland-based Petromatrix.
IRAN TALKS
The bearish tone for oil was also underpinned by an easing of tensions between the West and Iran. Tehran said it hoped enough progress would be made this week to enable negotiators to start drafting by mid-May a final accord to settle a long-running dispute over its nuclear programme.
The Islamic Republic and six world powers will hold a new round of talks in Vienna on Tuesday and Wednesday.
"If the current round of discussion in Vienna confirms that the final agreement will be drafted in May ... then the market will again start to focus a bit more on the supply and demand for the second half of the year, including higher flows of Iranian crude oil, in an environment where Iraq is also increasing production," Jakob said.
U.S. oil stocks were expected to have risen last week, a preliminary Reuters poll of four analysts showed ahead of a weekly inventory report from industry group the American Petroleum Institute, due at 2030 GMT on Tuesday.
Interfax-Ukraine: 8. April 2014
U.S. to stop financing nuclear safety efforts in Russia
Washington has announced it is halting financing of work on improving the security of Russian nuclear facilities, citing its disagreement with Moscow's actions in regard to Ukraine, national daily Kommersant reported on April 8.
Russian diplomat Yury Bezler ordered to leave Canada
The Canadian government has quietly ordered a Russian diplomat to leave the country, sources tell CBC News.Lt.-Col. Yury Bezler was told on Monday he has two weeks to leave Canada. The Russian Embassy's website describes Bezler as an assistant military attaché in Ottawa.
Bloomberg: 8. April 2014
Ruble Drops With Micex Most in Emerging World on Ukraine Rioting
By Vladimir Kuznetsov and Ksenia Galouchko
The ruble and the Micex Index (INDEXCF) slid the most among emerging markets as pro-Russian protesters in eastern Ukraine seized government buildings and the nation’s premier accused Russia of seeking a “territory of slavery.”
The ruble fell 0.9 percent to 35.6575 by 6 p.m. in Moscow. The equities gauge closed down 2.4 percent at 1,349.79, the biggest drop since March 12. Yields on 10-year ruble-denominated government notes rose 15 basis points to 8.99 percent.
Stocks and the ruble halted three weeks of gains as protesters stormed administration offices in the Ukrainian cities of Donetsk and Luhansk, urging a boycott of the May 25 presidential election. The Donetsk demonstrators demanded a referendum to join Russia, prompting Ukrainian Prime Minister Arseniy Yatsenyuk to claim President Vladimir Putin was trying to split up Ukraine. The Crimea region joined Russia after a vote last month, prompting U.S. and European Union sanctions.
“The return of Ukraine headlines became the next signal to sell Russia,” Kirill Yankovskiy, a director for equity sales at UralSib Capital in London, said in e-mailed comments. “Doors of administration buildings in Donetsk and Kharkiv now move the Russian market more than doors of the Russian central bank.”
Ukraine’s dollar-denominated notes maturing in June fell 1.07 cents to 96.97 cents on the dollar, the lowest in two weeks. The Ukrainian Equities Index dropped 2.4 percent.
Ruble Weakness
The situation in Ukraine risks worsening the “bleak” prospects for Russia’s economy and may keep pressure on the ruble this week, Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, said in an e-mailed note.
Putin’s aim is to divide Ukraine and turn part of the country into “a territory of slavery under a Russian dictatorship,” Yatsenyuk said in televised remarks from Kiev. “It’s crystal clear an anti-Ukrainian plan” is under way, “a plan to destabilize the situation, a plan so that foreign troops cross the border.”
The scenes echo the actions of pro-Russian protesters who stormed Crimea’s assembly and paved the way for Putin to annex the Black Sea province last month.
The protests are ratcheting up tensions with Russian troops massed across the boarder and raising the prospect of tougher U.S. and EU sanctions.
Similar Referendum
“There are rumors that Donetsk in Ukraine is preparing a similar referendum as Crimea,” Renata Klita, an analyst at Blackfriars Asset Management Ltd., said by e-mail. “You simply cannot exclude escalation of the conflict.”
Russia is “closely watching” events in eastern and southern Ukraine, Russia’s Foreign Ministry said in a website statement today. Ukraine should stop blaming Russia for its problems and start a national dialog, the ministry said.
The ruble depreciated 1.2 percent to 41.6679 versus the central bank’s basket of dollars and euros by 6 p.m. in Moscow. The currency had strengthened 4.4 percent to the basket in the previous three weeks on speculation President Vladimir Putin wouldn’t take steps to break up Ukraine following the Crimea annexation. The U.S. and EU imposed some sanctions on Russian and Ukrainian officials following the move and have said they may intensify measures if Russia tries to destabilize Ukraine.
Brent crude slid for the first time in three days, losing 1 percent to $105.70 per barrel in London. Oil and natural gas comprise about 50 percent of Russia’s budget revenue.
Sberbank Results
OAO Sberbank fell 3.7 percent to 79.95 rubles, after Russia’s largest lender reported 2 percent profit growth in the first quarter, according to calculations based on Russian accounting standards.
Sberbank’s return on equity, which typically exceeds 20 percent, was about 19 percent in March, Olga Naydenova, an analyst at BCS Financial Group in Moscow, said by e-mail.
Deposit outflows reached almost 1 percent, “suggesting the population is withdrawing money from banks,” Naydenova said. The results “underscore negative trends that are materializing,” she said.
The Finance Ministry may publish today the terms for purchasing foreign currency for one of its sovereign wealth funds, deputy minister Alexey Moiseev said April 4, according to Interfax. The ministry, which needs to buy about 174 billion rubles for the fund, suspended the purchase of 212 billion rubles ($6 billion) on March 4 after the ruble fell to a record.
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