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Otkritie launches financial stability index on Russia

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Otkritie Financial Corporation, one of the largest financial groups in Russia, has teamed up with the Gaidar Institute for Economic Policy (Gaidar), a non-profit research and education foundation, to launch its Financial Stability Index (FSI) on Russia.

The introduction of the FSI coincides with fears of a second financial crisis as August saw Russia’s stock market heavily sold off and the RTS index falling from over 2000 to 1200 in a matter of weeks. Although the Russian financial sector remained relatively stable during recent eurozone turbulence, rising uncertainty in global economies are a source of concern for future trends in Russia and highlight the need for the index, designed to forewarn of potential volatility.
 
FSI is a composite index that includes dynamics of monetary indicators (monetary aggregate M2, the money multiplier, core CPI, the amount of bank deposits with the RF CB and BBR with commercial banks), interest rates (the rates in the interbank market, mid- and long-term rates in the GKO-OFZ market), balance of payments indicators and foreign exchange markets (International reserves of the Central Bank of Russia, the ratio of monetary aggregate M2 to international reserves, real ruble exchange rate against the U.S. dollar) and stock markets indicators (the RTS index, MICEX index of corporate bonds, government bonds index RGBI). The aim is to achieve more clarity of how Russia’s financial system is faring in the face of Europe’s sovereign debt crisis and prepare for possible market disruptions.
 
Vladimir Tikhomirov, Chief Economist at Otkritie Financial Corporation, says: “We back-tested the index to 1998 and it works well. Between August and October this year, only one of the 15 indicators of the FSI signalled rising instability in Russia’s financial system. This indicator represents the sum of deposits of commercial banks with the Central Bank of Russia (CBR) and CBR bonds held by credit institutions, which tumbled by 45%.
 
The FSI suggests that the above mentioned trends only slightly increased the likelihood of financial instability in Russia from November and our index barely moved – remaining at 0.2 compared with 2.8 during the 2008 crisis.”
 
On current market conditions, Savov, says: “If the ruble falls in value against the dollar, then the CBR can increase interest rates and the two actions cancel each other out. The system we have now is more flexible and stable than what we had before the crisis began in 2008.
 
Banks are being squeezed by the general slowdown and low risk tolerance at the moment, however a combination of concerted actions by the CBR to contain liquidity issues and expected end of year increases in budget spending, should resolve any threats to the Russian banking sector.”
 
 

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