Wednesday, September 17, 2008

Trading Halted on Russian Stock Markets

Photo: Vasily Shaposhnikov

Trading was halted on the RTS and MICEX stock markets at 12:10 p.m. local time on the instructions of the Federal Financial Markets Service. The MICEX index had fallen 10 percent today. The loss leader on the index was Sberbank, down 26 percent. Trading was stopped yesterday as well as quotations went into a tailspin. At the end of the trading day yesterday, the MICEX index stood at 881.17 points and the RTS at 1131.12 points.
Critical shortages of liquidity, causing problems with REPO, among other things, were the cause of the massive shedding of assets, which also affected the Russian bond market, causing active selling there as well. The interbank credit market was experienced severe need for money, driving the interest rate up to 15-17 percent.
Experts say the market will rebound when liquidity is improved in Russia. Internationally, certain improvements can be seen. Contrary to market expectations, the U.S. Federal Reserve Board left the interest rate at 2 percent yesterday. Raising the interest rate to fight inflation would have been a knife in the back for financial markets, and lowering the rate would have been senseless. The real rate on federal funds is already negative and no more liquidity would be produced.

The board’s statement noted a growing risk of inflation and the possibility of further slowing of the economy. The Federal Reserve Board and the U.S. Treasury Department on Tuesday jointly authorized the New York Federal Reserve Bank to provide up to $85 billion to the American International Group for two years at a rate of LIBOR = 850 points. That had a calming effect on the market and could lead to slight growth.

Read also today's "My Press Digest-Russia-17 September" for the latest from Russia


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