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Friday, October 12, 2007

Russian Winter?

In my post Are Things Really This Good? I mentioned that the Russian financial system is experiencing liquidity problems. Well, things are getting worse.

“Russia's central bank lowered the interest rate on roubles used to carry out currency swap transactions to an annual 8 pct from 10 pct, effective today, in an effort to stabilize short-term rates on the currency market, Interfax reported.

The central bank also said the move should help regulate the liquidity of the banking system. Banks actively use currency swaps during unstable periods on currency markets and also when experiencing problems with liquidity.”

Minyanville Professor Sally Limatour had these comments:

“Today the Russian Central Bank revealed widespread liquidity problems for the banking system and announced a package of measures to prevent more trouble - lowering minimum reserve requirements and accepting credit as collateral.

The Kazah banks and companies are big borrowers to the tune of $70 billion or almost 70% of the countries GDP. The bank's 45 billion is about half their assets.

The central bank is lending 10% of the GDP to banks and short term rates are now up to 10% in the last two months.

Liquidity is tight in Moscow and banking problems are also appearing in Lithuania, Latvia and Azerbaijan as well as Romania and Hungary.

Is this important? Not sure, but I did not know the Thai Baht was important until it was. I am keeping an eye on it as the ramifications could roll on.”

Mish from Mish’s Global Economic Trend Analysis covers the developments in great detail in his post Russia Liquidity Problems and Other Warnings Signs. Heads up.