Russia’s banking sector is facing a liquidity strain due to portfolio outflows from non-residents, with overnight interest rates increasing from 8% on Monday to 9% this morning. This is despite large-scale liquidity injections by the central bank. On Monday, the bank offered RUB 261bn ($10.2 billion) in direct repo to banks, up from RUB 192bn ($7.5 billion) on Friday. Fitch issued a note commenting that no near-term rating actions as a result of the current liquidity squeeze are expected. But the agency warned that the associated rise in risk premiums “will reduce the Russian banks’ ability to tap markets and raise funding costs, which they may find hard to pass on to clients.” (For more analysis on the vulnerability of the country’s banking sector, please click here)
Bank lending in Brazil rose 1.7% in July from a month earlier as low interest rates and higher wages boost consumer spending. In July, loans to individuals remained the main driver of total bank lending volume growth, increasing by 23.1% year-on-year. Lending has proliferated thanks to a reduction in delinquency rates, lengthening of loan terms, and falling interest rates. Analysts say this trend will continue as domestic demand is expected to offset the recent volatility in global financial markets. (For more on Brazil’s booming banking sector, please click here)
Nigeria’s government is to scrap the planned redenomination of the naira announced by the central bank on 14 August. The plan was rejected due to the cost of the operation and on the basis that the measures violated the constitution as central bank governor, Charles Soludo, did not seek presidential approval. Analysts are concerned that such mistrust and lack of communication between the central bank and government will undermine efforts to ensure macroeconomic stability. (For details on how the reforms would boost access to local markets for foreign investors, please click here)
New figures show that Venezuela has pledged more than $8.8 billion in assistance to other Latin American countries this year, almost triple the amount the US gave the region in 2005. President Hugo Chavez is disbursing aid, buying debt, and selling cheap oil to allies in the region in order to promote the Bolivarian model of socialism and regional integration, free of US influence. (For coverage on Chavez’s newly established development bank dedicated to the region, please click here)