At the moment a great deal of attention has been focused upon the political and social fallout of Sunday’s elections results. Below, thanks to the ever astute Charles Clover at the Financial Times, is some analysis of how the polls are affecting the Russian economy:
Kingsmill Bond, strategist for Citibank, believes protests are likely to continue in the coming months and that means investors are adjusting to a new political landscape. “The market now has to factor top-down political risk into the Russian investment case, which it has not had to do for 12 years,” he said.
The market also has to expect the government to act differently. Mr Bond said the Kremlin may well postpone plans for liberal reforms such as raising utilities tariffs and pension changes, which had been planned to begin next year.
“We expect the government to go down a more populist path rather than a more reformist one,” he said.
The new reality is putting pressure on the rouble. Money market rates are up 30 or 40 basis points as the central bank has begun restricting liquidity supply, which Citibank analysts said may be attributable to pressure on the currency. The rouble has fallen about 1.5 per cent against a euro-dollar basket since the Thursday before the poll.
“We believe political uncertainty will put pressure on the rouble, in addition to global financial turmoil and a potential decrease in the oil price,” Citibank analysts wrote in a note this week. The political uncertainty could also exacerbate the capital flight being seen before the elections, several analysts noted. Anton Siluanov, the acting finance minister, said this week that the government expects about $85bn in capital to leave Russia this year.
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