Russia
gears up for sharp slump as bailed-out bank gets more
funds
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[December 26, 2014]
By Darya Korsunskaya and Vladimir Abramov
MOSCOW (Reuters) - Slumping oil prices
have put Russia's economy on course for a sharp recession next year, its
finance minister said on Friday, as authorities scaled up the bailout of
the first bank to succumb to the country's currency crisis.
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Russia's economy is slowing sharply as Western sanctions over the
Ukraine crisis deter foreign investment and spur capital flight, and
as a sharp slump in oil prices severely reduces Russia's export
revenues and pummels the rouble.
The government has taken steps to support key banks and address the
deepening currency crisis in the past week, including a sharp and
unexpected interest rate hike, but analysts are pessimistic on the
outlook for both the economy and the rouble.
Finance Minister Anton Siluanov told journalists on Friday that the
economy could shrink by 4 percent in 2015, its first contraction
since 2009, if oil prices averaged their current level of $60 a
barrel.
Siluanov also said the country would run a budget deficit of over 3
percent next year if the oil price did not rise.
Crude prices have almost halved from their June peak amid a global
glut and a decision by producer group OPEC not to cut output. Saudi
Arabia said on Friday it was prepared to withstand a prolonged
period of low prices.
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"We need to have our budget break even at $70 per barrel by 2017,"
said Siluanov.
Russia's government also imposed informal capital controls this
week, including orders to large oil and gas exporters Gazprom
<GAZP.MM> and Rosneft <ROSN.MM> to sell some of their dollar
revenues in a bid to shore up the rouble.
Russians have kept a wary eye on the exchange rate since the
collapse of the Soviet Union, when hyper-inflation wiped out their
savings over several years in the early 1990s.
The slide in the rouble will inevitably lead to higher inflation
next year, which after years of stability threatens President
Vladimir Putin's reputation for ensuring the country's prosperity.
ROUBLE TROUBLE
The Russian currency slipped on Friday after hitting its strongest
levels in more than three weeks earlier in the day,
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At 1245 GMT, the rouble traded at over 54 per dollar, a sharp
rebound from its recent all-time lows of 80 but still far weaker
than the 30-35 range it was trading at in the first half of 2014.
"If oil goes down to $50 (per barrel)... I don't think our
authorities will be able to artificially maintain the (rouble) rate
even with higher sales by exporters," said the head of treasury at a
major Russian bank, who asked not to be named because he is not
authorised to speak to media.
On Friday, Russian authorities also significantly scaled up rescue
funds for Trust Bank, saying they would provide up to $2.4 billion
in loans to bail out the mid-sized lender. The falling rouble has
prompted panic buying of foreign currency in Russia and a spike in
deposit withdrawals, heaping pressure on a vulnerable domestic
banking sector whose access to international capital markets had
already been restricted by Western sanctions.
Credit agency Standard & Poor's said this week it could downgrade
Russia's rating to junk as soon as January due to a rapid
deterioration in "monetary flexibility" in the country.
Meanwhile Russian gold and forex reserves have fallen to their
lowest levels since 2009. Last week, reserves dropped by as much as
$15.7 billion to below $400 billion, down from over $510 billion at
the start of the year.
(Additional reporting by Vladimir Soldatkin, Dmitry Zhdannikov and
Yelena Fabrichnaya; Writing by Dmitry Zhdannikov and Alexander
Winning; Editing by Hugh Lawson and John Stonestreet)
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