Unexpectedly, Russia’s Central Bank cut its interest rate by two points, citing a lower risk for inflation given the impending recession and low growth rates. The ruble weakened again against the dollar after the announcement to 72, its lowest level since December. Western economists cited their surprise at this development, and expressed concern that the Russian Central Bank was enacting practices of complete unpredictability, causing more stress in the exchange rate and financial markets than necessary.
The Central Bank defended the decrease, stating that the 13.1% inflation rate would likely fall in the coming months due to lower spending overall within the domestic economy, noting that the inflation itself is fueled by exchange rates and not by rising wages. However, they promised that inflation would not fall below 10% until January of next year, adding some doubt to their reasoning. The new rate cut, according to the statement, was cited as a chance to “kickstart” lending. One of the largest fears of the Russian government is the increase in capital flight and foreign direct investment from the economy, adding that coupling that with falling real incomes and tightening consumer credit would devastate the economy further.
Thus, it appears the Central Bank is attempting to spur lending, as one of the primary issues for the government are the dollar reserves they are spending to allow domestic companies to refinance and to prop up their value in the international financial markets. This moves seems designed around encouraging domestic lenders to shoulder some of the burden and increase the viable amount of time the Russian government can use these cash reserves.
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- Mongolia is holding a referendum vote by text message after the new Prime Minister sought approval for the new direction of the country’s economic policy. The overall question was over the steadily decreasing government revenue and if development of mineral resources or austerity should be the answer to slowing demand for coal. At the heart of this question is the ongoing dispute with Rio Tinto over the Oyu Tolgoi copper mine. The texting referendum will take place tomorrow.
- Another six civilians have been killed in an artillery barrage in Donetsk today, announced the separatist government. There was no immediate word from Kiev on the attacks, which came just before a contact group with representatives from Ukraine, Russia, separatist leaders, and the OSCE were designated to meet.
- The Afghan Parliament has rejected Ashraf Ghani’s nominees for his cabinet, adding another setback to the planned unity government. Ten of the 25 nominees for ministerial jobs were rejected, including the proposed defense minister. Parliament’s main issue with Ghani’s nominees was that most of them (7) held dual nationalities, while the remaining had to renounce their foreign citizenships to qualify.
- Turkmenistan has banned any car color that are not white, after an announcement that the customs agency was suspending imports of black, dark blue, and red automobiles, and telling exporters to ship only white cars. Existing cars are also to be made white or else be denied inspection certificates. It is thought that this is a directive from President Gurbanguly Berdymukhammedov, who is known to prefer the color white in all of his public appearances.
- The Astana Times has an interesting piece from Juha Kahkonen who is Deputy Director of Central Asia at the International Monetary Fund on how the lower price of oil and foreign exchange rates from Russia will cause 2015 to be a bit rough for the Central Asian and Caucasian economies. They advocate a number of short term remedies, such as using reserves and savings from past booms to prop up declining growth. Over the longer term, Kahkonen advocated reigning in current spending on oil and gas development and doubling down through diversification on infrastructure, education, and health will reduce any adverse long term impacts of the slowdown.
- A United Nations report cited a growing clampdown on public demonstrations in Kazakhstan, citing fears that such demonstrations could lead the kind of crisis that caused the current civil war in Ukraine. There was no immediate comment from Kazakh officials, and current president Nursultan Nazarbayev has overseen market reforms and attracted a large amount of foreign investment, while simultaneously keeping a very tight lid on dissent.