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VTB Group’s Orcel says Russian rates could drop up to 75 bps in 2020

Russian interest rates could drop by up to 75 basis points by the end of 2020, VTB Group Deputy Chief Executive Riccardo Orcel said on Tuesday, as long as inflation holds steady.

Orcel also told the Reuters Global Markets Forum on the sidelines of the World Economic Forum’s annual meeting in Davos that his firm had doubled the head count at its Shanghai office, aiming to take advantage of rising business volume in capital market deals involving Chinese companies.

Below are excerpts from the interview:

Question (Q) – Where do you see Russian interest rates going by the end of 2020?

Answer (A) – We have come a long way from a monetary policy point of view, considering interest rates after the currency shock (starting 2014) – we’re now at 6.25%. Inflation is running at 4% on average.

We estimate the interest rate can come down another 50 to 75 basis points, if inflation stays at 4%.

Considering global inflation dynamics, it could well be that we’re going to see lower inflation in Russia.

Q – What are going to be the key expansion areas for VTB, especially considering the Chinese market?

A – We still believe there is significant opportunity to do business in Africa, Turkey, central and eastern Europe, India and China – these are regions where we have less competition.

The opportunity for China is a long-term one. We’ve doubled the head count at our office in Shanghai. Just two weeks ago, we moved to much larger premises.

We very strongly believe there is a great opportunity to help Chinese companies come to Russia and vice versa.

Q – How many initial public offerings (IPOs) do you expect are going to happen in Russia this year?

A – It’s always very difficult to say because for IPOs in emerging markets, you are subject to windows which are always quite narrow. Markets need to be quite positive, all the stars need to be aligned.

However, I think we’re talking more IPOs than any in the last six to seven years – I’d say around 10.

Some IPOs are quite large in size, some are targeting listings in the United States. However, I’d be very happy if we are sitting here in December and we’ve closed five.

Q – Is the sanctions-related discount among Russian stocks more or less over, are markets moving beyond it?

A – Fundamentally, for the last five years we have remained constructive. I think the catch up (to other markets’ valuations) started probably two years ago. It has been more significant in 2018 and 2019. We see 2020 as a very strong year for equity markets in Russia. (This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Eikon platform. Sign up here to join GMF: )