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Igor Tabakov / MT
Renaissance Capital traders showing relief as shares rose Tuesday afternoon. The shares later lost their gains.
At the meeting, which included the heads of some of the country's major banks, including state-controlled and , the government agreed on a further $36 billion in loans to the banking sector with five-year terms — a measure Finance Minister Alexei Kudrin said would help ease the credit crunch in Russia.
"To prevent events connected with insufficient stability at certain banks, we are taking serious measures," Kudrin said following the meeting, Interfax reported.
Shares in Sberbank, the country's largest bank, managed to finish up 2.1 percent on the day on the MICEX, and VTB jumped by 5.3 percent on the same exchange — its first rise in a week.
The ruble-denominated MICEX Index went into a tailspin, falling by more than 100 points between 2 p.m. and 5 p.m. and ducking below the 700-point mark before recovering slightly to finish the day down 7.2 points — less than 1 percent — at 744.8 points.
The dollar-denominated RTS shed a total of 50 points over a one-hour stretch during the afternoon, before closing down 8.2 points at 866, a fall of 1 percent.
The markets opened on Tuesday four hours later than the regular time of 9 a.m. following a disastrous Monday that saw the MICEX Index fall by 18.7 percent and the RTS register a loss of 19.1 percent — its biggest single-day percentage loss.
In lieu of Monday's hemorrhaging, the Federal Service for Financial Markets lowered the loss level required to trigger a temporary halt to trading on the exchanges. While 10 percent was previously enough to stop trade, now it will be halted when the index falls 5 percent below the previous day's close
There was some hope early Tuesday that the Australian central bank's decision to cut interest rates by a full percentage point — the bank's largest cut since 1992 — would be good enough news to help the markets a bit, but the fact that European equity markets had their worst performance since 1987 on Monday and that the Dow Jones Industrial Average closed below 10,000 weighed heavily on investor sentiment.
The ruble managed a slight recovery against the dollar, its first gain in eight days, and was trading at 26.08 late Tuesday, up from 26.26 the day before, after the Central Bank sold $5 billion to prop up the currency.
The ruble started the day having fallen by 11 percent against the dollar since the beginning of August, and the country's foreign currency reserves have fallen by about 6 percent over the same period.
Early Tuesday morning, Medvedev announced plans to travel to Europe on Wednesday to discuss the current economic difficulties with European leaders in Evian, France.
Speaking for the first time on an online video blog, he called attention to the economic difficulties and the importance of cooperation between international leaders.
"International political problems and the crisis in the world financial system require urgent joint action," Medvedev said in video blog on the official Kremlin web site. "It is absolutely clear that the time for new decisions has come."
The Kremlin's quick decision to increase its financial bailout package to a figure roughly 10 percent of the country's GDP — a higher percentage than represented by the $700 billion figure in the United States — drew positive reviews.
"The state is doing what they need to do, which is ensure that Russia remains insulated from these global problems," said Kingsmill Bond, chief strategist at , adding that he believed Russian markets would make a strong recovery.
"While the market has not been resilient, the macroeconomic framework has been," Bond said, citing the economy's tremendous growth over the past seven years. "We see this as a trough to be crossed."
Ronald Smith, head of research at Alfa Bank, warned that a turnaround should not be expected too quickly.
"No matter how swift the reaction is, it's going to take months before we see results," Smith said.
"Investors' models don't work right now; there are too many things that are changing simultaneously," he said. "We don't know what inflation's going to do; we don't know what oil prices are going to do. Some of the underlying assumptions that were perfectly valid six weeks ago are now under question."
Smith said the strong reliance on commodities like oil for the country's economy magnified the recent woes on the markets.
Although a request to the government by for help in refinancing its debts initially pushed the company's shares downward, they did manage to recover, closing the day up 0.6 percent. stock fell by 1.4 percent and slid 2.9 percent on the day.
Bond said that while the low international commodity prices had a serious effect on the market, financial support from the government would ultimately help soften the blow.
"[Russia's] link to the global problems lies in two aspects: the high number of commodity stocks and the fact that so much debt comes from abroad," he said. "Given that China is still industrializing and the Russian government has been able to intervene to support the ruble and the banks, I believe there is now tremendous value in the market."
