(Some notations in the text have been corrected.)
[London, 12th Reuters]–The economic and financial costs of Russia’s invasion of Ukraine are likely to become clearer. The default of Russian government bonds, which had never been thought of before, has become a reality, and it is expected that the central bank will introduce further emergency measures. This is because there is no doubt that the stock market, which has been suspended, will crash if it resumes.
The invasion has cut off access to key parts of the world financial markets from Western nations, causing an economic crisis since the collapse of the Soviet Union in 1991.
The next milestone may come on March 16th. This is because two dollar-denominated government bonds will be due for payment of 117 million dollars in total. However, the Russian government has already indicated its intention not to pay. If you pay, it is said to be in rubles, but this is also equal to the default. Technically there is a 30-day grace period, but this doesn’t make much sense. Without payment, it would be Russia’s international default since the Russian Revolution about 100 years ago.
“Defaults are pretty imminent,” said Roberto Chiffon, chief analyst at S & P Global. The company has made a significant downgrade of Russian government bonds.
Russia’s gas giant Gazprom and oil giant Rosneft have made international bond payments in recent days. The government’s reserves, which are still evading sanctions, are about $ 200 billion, which is also a hope that defaults may not occur. However, the outlook for avoiding defaults seems steep.
The central bank of Russia announced on the 12th that it will suspend the trading of shares on the Moscow Stock Exchange on the 14th to 18th, with some exceptions. If suspended equity and bond trading resumes, there is no doubt that it will be at the height of confusion, at least in the short term. Major Russian companies listed on the London and New York markets have experienced a suspension of trading as the value of listed stocks dropped to virtually zero during the invasion.
“Many financial institutions still have Russian assets, but they want to get rid of them, but they can’t,” said Jane Foray, a currency strategist at Rabobank. “In fact, there is no choice but to salt, which means that as soon as you can trade, the sale may continue indefinitely.”
The story is unlikely to end here. The Russian central bank will hold a board meeting on the 18th. In order to avoid the financial crisis, the main policy interest rate has already been raised to 20% at once, and a wide range of capital control measures have been introduced.
Western JP Morgan and others expect Russia’s economic growth to reach -6% this year, coupled with concerns about banking, sanctions, and a chain of inflation due to the plunge in the ruble. At the beginning of the year, it was expected to be + 3%. The rate of change from peaks to valleys in the economy will reach about 12%. It will be worse than minus 10% during the 1998 ruble crisis, minus 11% during the subsequent global financial crisis, and minus 9% during the corona crisis.
“The Russian central bank may raise rates a little further, which is most appropriate,” said Arthur Budahyan, chief strategist for emerging markets at BCA Research. At this point, he predicted that further capital control measures could be taken to protect the financial system if there were even more major moves.