Russian Business News Week 24.11.2008 - 28.11.2008

30.11.2008

Russian Business News Week 24.11.2008 - 28.11.2008

This week market sentiment was much more optimistic compared to the last, with RTSI weekly growth of  +7.9% and MICEX of  +18.3%, though with high volatility in the course of the week. On Friday, RTSI and MICEX have fallen by -3.3% and 3.51% respectively as Russian Central Bank has announced a +1% point increase in its refinancing rate in order to sustain inflation. Oil is currently trading in the region of  $53-55 per barrel. OPEC refused to further cut production this week, after initial reduction of 1.5mn barrels per day announced on 1^st November did not trigger any market reaction due to anticipated fall in international demand.

A controversial situation around the depreciation of the rouble continues to be one of the main financial concerns for Russian economy, as its currency fell further over the past week to 31.28 against the Central Bank basket (consisting of 55% USD Dollars and 45% Euros). The rouble has been continuously under downward pressure due to falling oil and commodity prices forcing international investors to leave Russian market. The Central Bank has already spent $150bn of currency reserves to make the decline of the rouble gradual. Critics of the policy argue that it has given rise to speculation rather than stabilising markets and investor confidence.

On the political front, on Thursday Russia’s upper house of parliament has approved the proposal to extend the president’s term in Russia from four to six years, first announced by Dmitry Medvedev on the 5^th of November. This leaves the proposal to be approved by regional legislatures before final constitution amendment will be made. The supposed motive behind the move is to stabilise the political situation in the country at the time of financial and economic crisis.

Further international anti-crisis measures have been taken as Dmitry Medvedev has finished a weeklong trip to Latin America, which included the APEC international forum. Russian president has signed energy and trade cooperation agreements with Brazil, Venezuela and Cuba.

Over the past week Russia has increased pressure on Ukraine to pay off its $2.4bn gas debts to Gazprom “either on a voluntary or compulsory basis”. This is will be done by charging Ukraine a market price of $400 per thousand cubic metres of gas supplied next year, instead of the current reduced price of $179.5. Ukraine has already started debt repayments, and if the total debt will be paid back by 2009, Gazprom announced it will re-establish long-term contracts and cooperative relationship with “Naftogaz – Ukraine”.

Author:  Anastasia Shadrina