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Alternative Market Briefing

What is happening in Russia - liquidity squeeze but country saved by strong fundamentals, protected by reserves: Comments from Denholm Hall`s CEO, Russia`s largest bank to be listed in London

Friday, November 02, 2007

From Benedicte Gravrand, Geneva: George Nianias, Denholm Hall’s CEO, is a well known expert and adviser in capital markets and risk management. He has been working in Russian markets since the early 1990s. He gave his views on the liquidity situation and the banking system in Russia to Opalesque.

How is Russian faring now – liquidity problems but strong fundamentals There has been a liquidity squeeze in Russia since August 2007. The Russian Finance minister Alexei Kudrin acknowledged it recently at the IMF and World Bank annual meeting. He also said that the Western credit crisis still had the potential to hurt Russia and Russian investments further. The credit crisis has already restrained the debt markets in Russia, but its gold and foreign exchange reserves (of around $434 bil) act as a sound protection. But there is also a high inflation and the rouble is undervalued. “In conditions of high inflation and the appreciation of the rouble we remain attractive for speculative capital," Kudrin said (full Reuters article). "Accordingly we are unable to fully hold the money supply and this influences inflation, and this in turn influences the volatility of capital flows and liquidity." These are problems which the U.S. Fed and the ECB are also trying to deal with.

Since then the Russian central bank injected a combined 179 bil......................

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