Russia cuts interest rates again, marking fifth change in 2015

The Central Bank of Russia cut interest rates again last week, declining to further comment on additional economic easing to any sources, taking rates from 11.5% to 11% from its high of 17% earlier this year. The continuation of easing suggests that the CBR is attempting to pick up the flagging economy without letting inflation rise too substantially. The WSJ says that additional rate cuts are likely this year after speaking with Oleg Kouzmin, chief economist at Renaissance Capital and he confirmed that most analysts believe the rate will fall to around 10% or lower by the end of the year.

The aim of the CBR is to have a tighter fiscal policy with reduced spending and budget cuts across the board, a looser monetary one consisting mostly of a softening exchange rate to boost exports. Of additional note was the tumble of oil prices last week and this week to their present states at roughly $45 per barrel, and oversaturation of supply in the market likely to keep prices around these levels for the foreseeable future or until OPEC (Saudi Arabia specifically) decides to switch its historically high production stance. The CBR noted that the likelihood that prices will remain below $60 for the medium term has increased since the last meeting in June. The ruble’s rate of exchange against the dollar slid to 61.5 after the decision was announced, a new low not seen since mid-March.

The IMF additionally is quite pessimistic for Russia’s outlook, saying that recovery could be far slower than Kremlin forecasts. The IMF’s report by its chief of Russian mission, Ernesto Ramirez Rigo, said that “strengthening governance and protection of property rights, as well as cutting regulatory red tape… as would better customs administration and reduced trade barriers” would increase domestic investment within Russia. With state Duma elections scheduled for October, far ahead of a normal schedule, the CBR is in a race to show progress to Russian voters lest they allow any opposition candidates to gain a foothold.

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News Briefs:

  • Kyrgyzstan and Turkmenistan’s heads of state, President Almazbek Atambayev and Gurbanguly Berdimuhamedow met in Bishkek to discuss energy cooperation, where the potential for a Turkmen-Uzbek-Tajik-Kyrgyz-China pipeline project was publicly discussed. However, the prospects to get all the states’ participation on this front was low, despite the Chinese National Petroleum Corporation commissioning several branches of gas pipeline from Turkmenistan through Uzbekistan and Kazakhstan.
  • Kazakhstan has announced a Trans-Caspian rail transit launch to Azerbaijan, stretching from Alyat to Aktau and connecting with Shikhezi in China to Dostyk (near Almaty). President of the Temir Zholy Parliamentary body Askar Mamin and Azerbaijani Railway Chairman Dzhavid Gurbanov expressed their hope that this will increase trade volumes between China, Kazakhstan, Georgia, and Azerbaijan. The first shipment on the rail line will be several containers of caustic soda, a waste product from chlorine production used in chemical and industrial applications.
  • Earlier this week, Kazakhstan announced it would construct a fourth oil refinery and transport the finished product for re-export to Iran. The new refinery will be constructed at Mangistau, and hydrocarbons will be sent to northern ports of Iran, where it will then enter the seaborne market. Kazakhstan currently has three refineries at Atyrau, Pavlodar, and South Kazakhstan.
  • Kazakh President Nursultan Nazarbayev has approved Kyrgyz entry into the EEU today, being the last country to ratify the agreement on accession after it was ratified instantly by Armenia, Belarus, and Russia. Kyrgyz Deputy PM Valery Dil said that customs offices on the border of Kyrgyzstan with Kazakhstna would be opened days after Kazakhstan fully ratifies the documents, but expect further delays in integration to come.
  • Afghan peace talks with the Taliban were rocked last week when it was admitted by the Taliban that the figurehead of the Afghan Taliban movement, Mullah Omar, had died two years ago. Afghan negotiators rightly asked how talks could be in good faith if Omar was in fact deceased. This move may have exposed major rifts in the Taliban’s new leadership, as the new leader, Mullah Akhtar Mohammad Mansour had promised to continue to fight. The main question is, did the contingent of the Taliban still fighting in Afghanistan, headed by Mansour, actually sanction the Murree meetings first in China and then Pakistan? Read more at the Diplomat.
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