Dmitry Tymchuk, Information Resistance

Information Resistance

March 17, 2014
Translated and edited by Voices of Ukraine

Dear friends, there is an addition to our Information Resistance group – “in the face of” serious economists. Allow me to introduce their first overview in the context of all IR activities.

Economic results of March 17, 2014

In Ukraine, the foreign exchange market is cautiously optimistic about the consequences of the so-called “referendum” in Crimea. The hryvnia rate was supported by the news on sanctions imposed against persons involved in the occupation of Crimea.

In Russia, the foreign exchange market is relatively stable – it reacted with restraint to the announced results of the so-called “referendum” in Crimea. Stock speculators fell into a short-lived euphoria after the announcement of its results. However, experts give weak predictions about the rates of Russian shares. A capitalization of the largest Russian companies remains at the level to which it fell after it was announced that the Russian troops were entering Crimea in early March of 2014.

The main news of the day:

1. Russian rouble did not fall against the dollar on March 17 – despite the sanctions imposed by the West against Russian officials and politicians: the rate of the Russian currency has declined from 36.64 per dollar on March 14 to 36.65 rubles per dollar. As a reminder, on March 3, 2014 the rate fell from 36.18 to 36.38 rubles per dollar. In early March, the retention of the ruble from a sharp collapse cost the Central Bank of the Russian Federation more than $10 billion in foreign exchange reserves. Keeping the ruble from decline after the start of the intervention proved to be an expensive feat for the Central Bank of Russia: the total volume of foreign exchange intervention totaled more than $19 billion, which constituted about 4% of the foreign exchange reserves.

2. The Russian Federation expected the EU and the U.S. sanctions against Russia to be much tougher than announced. As a result, the prices of the Russian shares rose slightly – the stock index on the Moscow Interbank Currency Exchange (MICEX) grew from 1237.43 on March 14, to 1283.7 points. That is almost 4%. The minimum achieved on March 14 – 1237.43 points – is  the lowest value of the stock index during MICEX since the occupation of Crimea.

As a reminder, on March 3, 2014, the first working day after the Russian troops were deployed into Crimea, the index fell from 1444.71 to 1288.81, which is about 12.5%.

Because of the fall in equity prices, the capitalization of the Russian companies fell compared with the “prewar” rate for approximately $55 billion.

3. One of the world’s largest investment banks, UBS, lowered the cost forecasts of leading Russian shares on March 17. In particular, it reduced the predictive value of the “Gazprom” shares from $4.65 to $3.5. The forecast on “Sberbank” [largest bank in Russia] shares was downgraded from 150 to 130 rubles. Thus, the reduction rate is projected to be about 28% for Gazprom and about 15% for Sberbank. They account for the largest share of transactions on the Russian stock market. Both companies are largely state-owned and are the largest joint-stock corporations in Russia. Forecasts reflect the concerns about the risks faced by the Russian business in connection with sanctions and the escalating situation [in Crimea.]

4. On the Ukrainian interbank market, the rate of hryvnia stabilized at 9.9/10.15 hryvnia per dollar after a morning decline to 9.7/10.20 hryvnia per dollar on March 17. The National Bank has set the official exchange rate for March 18, 2014 at 9.7568 hryvnia per dollar. On March 17, the National Bank did not enter the interbank foreign exchange market. The rate of hryvnia formed in the evening of March 17, 2014 on the interbank market suggests that the cash market will be stable near the level of 9.6/10.25 hryvnia per dollar. Slight depreciation of the hryvnia against the dollar on Monday, the next day after the so-called “referendum,” indicates the positive market expectations regarding the situation in Ukraine.