Russia currency in the red again
Even interest rate hike does not stop ruble slide
08/15/2023, 3:10 p.m
In order to stop the devaluation of the rouble, the Russian central bank has raised the key interest rate sharply. The slide in the national currency is still continuing. Even the announcement that there could be another rate hike in September did not initially trigger a price reaction.
Despite the sharp interest rate hike by the Russian central bank, the ruble continues to slide. The Russian currency fell 0.4 percent to 98.02 against the US dollar in the afternoon. In anticipation of Bank Rossii’s decision, the ruble had appreciated as much as 5.2 percent to 92.60 against the dollar earlier in the morning, but gradually eased gains after the announcement. The announcement that there could be another rate hike in September did not initially trigger a price reaction.
At a crisis meeting, the currency watchdogs headed by Elwira Nabiullina, head of the central bank, decided to raise the key interest rate to 12.00 percent from 8.50 percent. They reacted with the tighter course to the collapse of the national currency, which had slipped to its lowest level in almost 17 months against the dollar at the beginning of the week. With the tighter exchange rate, they reacted to the collapse of the Russian currency, which had slipped to its lowest level in almost 17 months against the dollar at the beginning of the week.
The background is the Western sanctions against Russia, which are increasingly weighing on the trade balance. In addition, ever larger sums are being put into the military budget for the Ukraine war, which the government in Moscow calls a special military operation.
Although the currency’s depreciation was initially halted, analysts were largely in agreement that the interest rate hike should not have any lasting effects. “As long as the war continues, things will only get worse for Russia, for the Russian economy and for the ruble,” said Timothy Ash of Bluebay Asset Management. Raising key interest rates is not a thoroughgoing solution. This could temporarily reduce the rate of ruble devaluation. However, this is likely to come at the expense of economic growth.
Recently there had been disagreements between the Kremlin and the central bank. Maxim Oreshkin, President Vladimir Putin’s economic adviser, has criticized that loose monetary policy is the main reason for the weakening of the ruble and the acceleration of inflation. The Kremlin wants to see a strong ruble and expects it to normalize soon.
The central bank, meanwhile, took the view that rate hikes would have no direct impact on the exchange rate. Central bank deputy governor Alexei Sabotkin said growing demand for imports coupled with subdued export growth is putting the ruble under pressure.