No Easy Options for Russia?s Central Bank to Halt Ruble Slide
Moscow. Pressure is growing on Russia?s central bank to adopt more radical measures to defend the tumbling ruble, such as interest rate rises, but there is no easy fix.
The bank?s board meets on Oct. 31 to discuss monetary policy and there is growing speculation it may soon raise rates to support the ruble, which is being hit by plunging oil prices and Western sanctions imposed over the Ukraine crisis.
The bank says it is also weighing other measures, including long-term dollar loans to banks, as it tries to restore calm to markets.
The ruble has lost more than 16 percent of its value against the dollar over the last three months, and the central bank has spent over $15 billion of its foreign reserves to defend it.
While there is little sign that the fall is causing public panic, the central bank?s goal of reducing inflation to 4.5 percent next year ? from around 8 percent at present ? means it cannot ignore the ruble?s slump, which is pushing up import prices.
And if the currency?s decline gains momentum as some predict, it could yet cause wider financial instability such as runs on bank deposits.
?There?s a real danger that this becomes a self-fulfilling currency crisis if we?re not careful,? said Neil Shearing, chief emerging market economist at Capital Economics in London.
With the Russian economy teetering on the verge of recession, the central bank will be reluctant to raise interest rates.
However, the bank?s deputy chairman said on Wednesday that the bank would have to ?seriously? think about rate increases if the current situation continues ? something the IMF has urged Russia to do to achor inflation expectations.
?At the moment they are not winning the battle. They need to do it the old fashioned way, that is increase rates by 150-200 basis points,? said Michel Danechi, portfolio manager at EI Sturdza Strategic Emerging Europe Fund.
Any decision to raise rates would not be taken lightly.
The bank has already increased its benchmark rate three times this year, by a cumulative 250 basis points to 8 percent, and there are doubts about how effective even higher interest rates would be in encouraging investors to hold rubles. Sceptics said foreign inflows have largely been deterred by Western sanctions, while many Russian outflows are linked to debts that must be repaid in any case.
Russian companies have around $140 billion in foreign debt repayments by the end of 2015, a major factor behind the ruble?s weakness.
Other analysts urge the bank to bring forward floating the ruble, planned for the end of this year, to provide more flexible options to manage the exchange rate.
So far the central bank has been sticking to its existing framework, under which it keeps the ruble inside a floating band against a dollar-euro basket, intervening when it reaches the edge of a nine-ruble-wide corridor.
The result has been to slow the ruble?s fall ? at the cost so far this month of around $15 billion in foreign exchange reserves ? while doing nothing to stop the underlying selling pressure.
It may actually be making matters worse, as the predictable nature of the bank?s moves is encouraging one-way bets against the ruble.
?The central bank is defending the exchange rate while giving everyone the opportunity to get into the trade [against the ruble]. This is creating additional speculative pressure,? said Alexey Pogorelov, Russia economist at Credit Suisse.
A more effective policy, critics say, would be to scrap the corridor but make periodic interventions. That way, the bank could punish speculators by springing occasional surprises.
But not everyone agrees that floating the ruble ahead of schedule would make matters better ? especially as the immediate consequence could be a further large fall.
?What the central bank is trying to avoid is a very abrupt adjustment in the ruble,? said Shearing. ?History would suggest that [a floating currency] plunges much further than it otherwise would have done ? it overshoots in other words.?
Ultimately, neither higher interest rates nor a more flexible intervention policy can address the underlying problems that are battering both the ruble and the Russian economy.
The root problem is a hole in the balance of payments, caused by the double whammy of falling oil prices and a freeze on foreign investment linked to Western sanctions.
Estimates of the size of this hole vary, depending on forecasts for oil prices, the ruble, the easing of sanctions, and Russian companies? ability to boost sales.
Pogorelov at Credit Suisse predicts a $30 billion gap between Russia?s foreign exchange earnings and outflows in 2015. Shearing from Capital Economics sees a $130-140 billion shortfall over the next 12 months.
Whatever the true figure, many analysts expect the central bank will have to keep dipping heavily into its $440 billion in reserves even after the ruble is allowed to float.
A recent scheme to provide up to $50 billion to banks through repo loans is seen as a step in the right direction. Yet it has done little to calm markets.
One problem is that the instruments on offer, with maturities of seven or 28 days, do not address the need for long-term finance.
The central bank has said that it is considering much longer-term measures requested by banks, including repo loans of up to three years.
But while its foreign exchange reserves are ample enough, the bank appears reluctant to use them to bail out banks, which would raise questions about how safely they are being invested.
?The risk is that the [borrowing] bank won?t be able to redeem ? this is potential pressure on the central bank reserves,? said Natalia Orlova, chief economist at Alfa Bank.
?If the reserves are used by banks then the market will consider that this money is no longer available for [ruble] support, which could potentially translate into more pressure on the currency.?
Saratoga Aims to Raise $60m in Bond Sale
[caption id="attachment_295617" align="aligncenter" width="780"] Sandiaga Uno, co-founder of Saratoga Investama Sedaya, gestures during an interview at his office in this file photo. (REUTERS/Beawiharta)[/caption]
Jakarta. Saratoga Investama Sedaya, an investment company co-founded by businessman Sandiaga Uno, plans to sell Rp 725 billion ($60 million) medium-term notes to help refinance its debts.
?All the funds will be used to repay loans to DBS Bank,? Saratoga said in a statement on Thursday, adding that DBS Vickers Securities was appointed as underwriter for the debt papers.
Saratoga signed a $40 million deal with DBS Bank in February this year to help finance its acquisition of Kendall Court Resource Investments, a unit of Singapore-based funds manager Kendall Court.
Saratoga withdrew $17.5 million from the loan commitment in April.
Earlier this month, Saratoga exercised its call option to buy an 80 percent stake in mining company Trimirta Karya Jaya worth Rp 275 billion.
Saratoga expanded its business reach into the retail sector buy acquiring a 5.83 percent stake in Gilang Agung Persada, the local operator of global high-end fashion and lifestyle brands, including Guess, La Senza, Celine, Givenchy, Banana Republic, Swarovski and Swiss Army. The transaction was worth Rp $5.16 million.
Saratoga, which also controls shares of automotive company Mitra Pinasthika Mustika, booked Rp 542 billion in profit during the first half of this year, up 242 percent from the same period in 2013, due largely to rising revenue from its investments. The company?s shares rose 0.96 percent to Rp 5,250 on Thursday.
Tunas Baru?s Capital Pot $23m Sweeter By Stake Sale
Jakarta. Agricultural-based consumer goods producer Tunas Baru Lampung has announced plans to raise Rp 286 billion ($23.7 million) to beef up the company?s capital.
Tunas Baru intends to sell 400 million stocks at Rp 715 each through private placement, selling new shares to specific investors as opposed to existing share holders, the company said in a prospectus published in Investor Daily on Thursday.
The plan is yet to be approved by extraordinary shareholders, who are scheduled to meet on Nov. 7, 2014.
Tunas Baru plans to use the proceeds fund its business expansion. Following the sale, shareholders? stake in the company will be diluted by 7.49 percent.
Tunas Baru Lampung is the agricultural unit of business conglomerate Sungai Budi whose founder, Widarto, is one of the richest people in Indonesia, according to Globe Asia magazine?s rich list.
The Jakarta-based company announced in July it had set aside $103 million to build a new sugar mill.
The company currently operates a similar manufacturing facility in Lampung, which has a production capacity of 125,000 tons of sugar per year, according to its website.
Established in 1973, Tunas Baru ? through multiple subsidiaries ? is engaged in the manufacturing and distribution of agricultural-based consumer products such as cooking oil, palm oil, coconut oil and sugar.
Shares of the company rose 2.2 percent to trade at 685 at the Indonesia Stock Exchange (IDX) on Thursday, in line with 0.6 percent gain in the benchmark index.
Tunas Baru operates oil and sugar refineries in Lampung, Palembang and Surabaya. The company also owns palm oil and sugar cane plantations in those cities, as well as in Pontianak, West Kalimantan.
Tunas Baru sold roughly Rp 2.7 trillion worth of consumer goods in the first half this year, 28 percent of which were reserved for exports.
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The 179 parties to the treaty are legally obligated to raise taxes on tobacco products to reduce tobacco consumption. The guidelines unanimously adopted this week will help parties meet this obligation.
Studies and experience from around the world show that making tobacco products more expensive by raising taxes is the most effective way to reduce tobacco use, especially among vulnerable populations such as youth, pregnant women and low-income tobacco users. Tobacco taxes are also an effective way for governments to generate revenue.
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The report finds that 77 countries and territories have finalized picture warnings — up from 55 countries that had implemented by the end of 2012 and just one country — Canada — in 2001.
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The International Tax and Investment Center (ITIC), a Washington, DC-based organization, has asked government representatives from around the world to attend a private meeting shortly before the conference in an effort to undercut progress on tobacco tax increases. According to the Financial Times, “all four of the major international tobacco companies, including British American Tobacco and Philip Morris International, are sponsors of the ITIC and have representatives on its board of directors.”
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