A debt deadline and central bank hikes are looming for Russia

A debt deadline and central bank hikes are looming for Russia.

LONDON, March 11 (Reuters) - If Russia regains control of Ukraine, the cost of its invasion will become much clearer this week, with a previously unimaginable sovereign default, additional emergency central bank measures, and a stock market crash expected.

Moscow's "severe operation" in its previous Soviet neighbour has shortened Russia from key parts of the global financial markets by the West, causing the country's worst economic catastrophe since the Soviet Union's 1991 collapse.

Wednesday is expected to mark another low. The government is due to pay $117 million on two of its dollar-denominated bonds. But it has been signaling that it will not, or if it does, it will be in roubles, tantamount to a default.

Technically, it has a 30-day grace period, but that's a minor issue. If it happens, it would be the first international default since the Bolshevik revolution over a century ago.

"Default is quite imminent," says Roberto Sifon, a top analyst at S&P Global, who has just struck Russia with a worldwide sovereign credit rating downgrade.

Gazprom and Rosneft, the state-run energy firms, have made international bond payments in recent days, and around $200 billion of still-unsanctioned government reserves, is a source of hope that might not be confirmed, although these odds seem unanswered.

Wednesday might be busy for other reasons as well.

According to Russian media, the Vedomosti financial newspaper said it had reported that local equity and bond trading would be suspended by the end of this week.

It would be a chastised at least in the short-term. Russia's major companies, which are also listed on the London and New York markets, have experienced that global stock market almost to zero when the crisis broke out, and have now been removed.

"There are a lot of financial institutions that are focused on Russian assets that they want to rid of, but they can't," said Rabobank's currency strategist.

"They have no choice but to sit on them. But that means that when they are allowed to trade, the selling might be quite large."


Russia's central bank is scheduled to meet on Friday, with interest rates exceeding 20%, and large capital controls to try and prevent a complete financial catastrophe.

Western investment banks like JPMorgan anticipate the economy to fall 7% this year due to the combination of bank run worries, sanctions problems, and the immediate inflation surge that is caused by a 40% fall in the rouble.

The above is true to predictions of 3% growth at the start of the year; it implies a peak-to-trough drop of 12%, which would be higher than the 10% drop in the 1998 rouble crisis, the 11% drop during the global financial meltdown, and the COVID-19 epidemic's 9% decline.

"The CBR may hike rates a bit further, and that's what's happening right now," said Arthur Budaghyan, the chief emerging market strategist at BCA Research.

Further capital control measures are being taken to help keep the financial system under control.

"It's much more important to ensure that banks can function, may still process payments, and keep credit flowing to the economy so it may at least function in certain capacities," said Budaghyan.

A debt deadline and central bank hikes are looming for Russia.

Post a Comment

Previous Post Next Post