Russia 110505 Basic Political Developments

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Russia April services PMI strongest since Dec

Thursday May 05, 2011 06:00:04 AM GMT

PMI-SERVICES/RUSSIA

MOSCOW, May 5 (Reuters) - Russia's service sector growth accelerated in April, showing its strongest reading since December thanks to a rise in new business on the back of high oil prices, data showed on Thursday.

The HSBC purchasing managers' index (PMI) for the services sector rose to 55.8 in April, up from 53.3 in March, edging closer to a seven-month peak of 56.4 seen in December.

The index remained above the 50.0 mark that separates expansion from contraction.

"April PMI data have finally revealed a marked improvement in business activity in services," said Alexander Morozov, chief economist for Russia and the Commonwealth of Independent States (CIS) at HSBC.

"Moreover, the gain has been strong enough for an acceleration in overall economic growth, despite a weaker expansion in manufacturing."

HSBC said that hotels and restaurants, as well as financial intermediation were the fastest-growing areas last month, signalling a return of pre-crisis private consumption trends.

"These should sustain growth momentum in the sector in the short term. We attribute these developments to the recent surge in oil prices and keep expecting an entrenchment of this trend going forward," Morozov added.

HSBC also said that employment increased at the strongest rate in over three years, reflected in salary rises, seen as a driver of higher input costs along with taxes, rents and fuel. The employment sub-index rose to 53.2 from 52.6 in March.

"Apart from taxes that are policy-driven, the rest looks pretty much the same mix that Russia had before the crisis. In that case, the resumption of policy tightening would be justified," Morozov said.

Inflation remains one of the greatest issues plaguing Russia's recovery from the financial crisis and is high on the list of voters' concerns ahead of parliamentary elections in December and presidential elections in March 2012.

The central bank raised key rates last Friday, surprising markets with a broad tightening move and signalling it is ready to let the rouble rise to curb inflation, which it wants to keep in a 6 to 7 percent range.

The central bank warned that future decisions will have to balance out the needs to tame inflation, spur economic growth and avoid excessive rouble appreciation. (Reporting by Katya Golubkova, editing by Stephen Nisbet)

Russia's Service Sector Activity Strengthens In April

http://www.rttnews.com/Content/AllEconomicNews.aspx?Node=B2&Id=1615326
(RTTNews) - Russian service sector activity expanded for an eighth consecutive month in April and at the strongest pace since December last year, survey by Markit Economics showed Thursday.

The services business activity index posted 55.8 during the month, up from 53.3 in March. A PMI reading above 50 indicates expansion of the sector.

The manufacturing output index posted 54.7 in April, while the composite output index for both sectors registered 55.4, a four-month high.

Service sector activity was boosted by robust gains in new work. Employment in the sector grew for the sixth month running and at the strongest pace since March 2008.

Service providers registered sharper increases in input prices. Private sector input price inflation eased slightly in April, but remained sharp in the context of historic data.

by RTT Staff Writer

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Mexico, Russia, Thailand expand bullion reserves

http://www.businessday.co.za/articles/Content.aspx?id=141778
Mexico, Russia and Thailand added gold now valued at about $6bn to their reserves in February and March.

NICHOLAS LARKIN

Published: 2011/05/05 07:27:42 AM

MEXICO, Russia and Thailand added gold now valued at about $6bn to their reserves in February and March as the price of bullion advanced to a record, International Monetary Fund (IMF) data showed yesterday.

Mexico added 93,3 tons since January, when holdings were about 6,9 tons, the data on the IMF’s website shows. Russia increased its reserves of the metal by 18,8 tons to 811,1 tons in March and Thailand expanded assets by 9,3 tons to 108,9 tons in the same month, according to the IMF.

"Central banks have good reason to buy gold ," business professor and former economic adviser to the US government Peter Morici said yesterday. "The dollar is no longer a safe asset for backing currencies. Treasuries are not a sound investment" and budget and debt issues mean central banks should buy gold.

Central banks are expanding their gold reserves for the first time in a generation. Countries boosted their holdings in 1980 when gold rose to a then-record $850/oz, only to fall for most of the next 20 years.

"Mexico’s gold accumulation confirms the demand of emerging market central banks to diversify their reserves," said Bayram Dincer, an analyst at LGT Capital Management in Switzerland.

Gold for immediate delivery climbed to a record $1577,57/oz on Tuesday and traded at $1531,60/oz in London yesterday. Global holdings by states and official institutions stood at 30523 tons by last month, the World Gold Council says. Bloomberg

Russia to Resist Rate Rush Even as Prices Climb, Economists Say

http://www.businessweek.com/news/2011-05-04/russia-to-resist-rate-rush-even-as-prices-climb-economists-say.html
May 04, 2011, 6:26 PM EDT

By Agnes Lovasz and Scott Rose

May 5 (Bloomberg) -- Russia will avoid speeding up interest-rate increases even after inflation accelerated last month as central bankers seek to avoid choking economic growth, economists said.

The inflation rate climbed to 9.6 percent from 9.5 percent in March, matching the fastest pace since October 2009, a report showed yesterday. The central bank unexpectedly raised its main interest rates last week for a second time this year to rein in price growth. At 8.25 percent, the refinancing rate remains negative when adjusted for inflation.

The central bank and the government must strike a balance between fueling the most sluggish growth among the so-called BRIC economies and keeping inflation from sapping purchasing power and consumer confidence less than a year before parliamentary and presidential elections.

"If you look at Russia’s growth compared to other emerging markets, it’s been slow," Paul Biszko, an emerging-market strategist at Royal Bank of Canada in Toronto, said by phone. "They have been more cautious about tightening policy than other places, given the economic sensitivities. That’s not going to change any time soon unless inflation jumps into double digits sustainably."

The ruble reached its strongest level since December 2008 against the central bank’s target basket and closed at a 29- month high versus the dollar. It gained 0.3 percent to 33.1932 against the dollar-euro basket by the 5 p.m. close of trading in Moscow yesterday, the strongest since Dec. 21, 2008, according to data compiled by Bloomberg.

The currency advanced 0.7 percent to 27.1699 per dollar, the most since Nov. 10, 2008, based on closing prices.

‘Needs Low Inflation’

Fighting inflation is a bigger priority than containing ruble gains, Finance Minister Alexei Kudrin said April 25. The world’s biggest energy supplier "needs low inflation" to make financing cheaper for companies and home buyers, Prime Minister Vladimir Putin said the same day, predicting the rate won’t exceed 7.5 percent this year, the slowest on record.

Gross domestic product in Russia, where President Dmitry Medvedev wants to accelerate growth to as much as 10 percent in five years, will expand 4.5 percent next year, compared with 9.1 percent for China and 7.8 percent for India, the International Monetary Fund forecast in April.

Real wages dropped for the first time in 16 months in March and disposable income also declined, a report showed on April 19, a sign that the recovery remains uneven.

‘Won’t Act’

"The central bank won’t act as promptly as necessary," said Guillaume Tresca, emerging markets strategist at Credit Agricole SA in Paris by telephone. "They are behind the curve because they still want to stimulate domestic demand and the second issue is the election and it’s a very political, very sensitive issue."

Fighting inflation is becoming more of a priority and interest rates may rise more than predicted earlier, said Michael Ganske, head of emerging-markets research in London at Commerzbank, Germany’s second-biggest lender.

"They have been quite reluctant to raise interest rates, but I think they woke up and they understood that inflation is a more severe problem than originally assumed," Ganske said. "They will do more than originally expected but they won’t be super aggressive."

Russians see inflation as the country’s biggest challenge facing the country, according to a poll by the state-run VTsIOM research center. Consumer prices rose 0.4 percent from a month earlier, compared with 0.6 percent in March, according to yesterday’s report.

Monetary Factors

Monetary factors may now sustain inflation originally sparked by shocks like last year’s drought, the central bank said after unexpectedly raising borrowing costs last week. Retail sales increased 4.8 percent last month from a year earlier, while real wages unexpectedly fell for the first time in 16 months and disposable income dropped 3.4 percent.

Companies including X5 Retail Group NV, Russia’s largest grocery operator, have benefited from strengthening consumer demand and a 2.6 percent rise in retail lending in the first quarter compared with the previous three months. Retail sales increased 4.8 percent last month from a year earlier.

The government raised export duties on gasoline last week to hold down prices and fight fuel shortages.

Gasoline prices jumped 0.9 percent in April from a month earlier, up from a 0.8 percent monthly decline in March. Food prices grew 0.4 percent in April from the previous month, compared with a 0.9 percent rise in March. Inflation in the year to date was 4.3 percent, compared with 3.5 percent in the first four months of 2010.

Core inflation, which strips out volatile components, rose 0.5 percent from a month earlier, less than the median estimate of 0.6 percent in a Bloomberg survey. That brought core inflation to 3 percent for the year, compared with 1.7 percent for the first four months of 2010.

--Editors: Balazs Penz, Paul Abelsky

To contact the reporters on this story: Agnes Lovasz in London at [e-mail]; Scott Rose in Moscow at [e-mail]

To contact the editor responsible for this story: Balazs Penz at [e-mail]