The ruble weakened against the dollar and euro after the Central Bank of the Russian Federation decided to raise the key interest rate to 12% annually on expectations that the regulator will tighten currency control measures. BCS Mir Investments stockbroker Dmitry Babin expressed this opinion in an interview with socialbites.ca.
“The Central Bank’s decision to immediately raise the interest rate by 3.5 percentage points was unexpected. Most predicted a less significant move. Despite this, the ruble fell sharply after a short-term strengthening. The pressure on the national currency likely came as many expected the Federal Reserve to tighten currency controls. Including a hint of at least a possible return on a certain share of export earnings, which is mandatory for sale in the domestic market,” Babin explained.
However, the expert noted that this is likely to be difficult due to the risks of sanctions on transactions with these proceeds.
Considering that the weakening of the ruble observed in recent months is only due to increased consumer demand, which is not so much but exacerbated by excessive lending, raising the key rate to even higher levels alone may not lead to a sustainable recovery. Ruble, Babin said. This was explained by the continuing foreign exchange shortage caused by the decline in export earnings, the lack of return to the country, and also the impediment of friendly countries’ export payments in rubles and illiquid currencies.
“The situation is getting worse with the steady outflow of important capital. All these factors are weakly dependent on the level of interest rates in the economy. The ruble can still be bolstered as the next tax period approaches. Unlike previous months, where this factor kept the ruble from a steady depreciation for a while, this time the impact of exporters’ financial payments could be more tangible. For this purpose, they can sell more foreign currency due to the increase in oil prices since the end of July.
On Tuesday, on the eve of the Central Bank’s extraordinary meeting at a key rate, the ruble exchange rate opened and then strengthened for a while. In the Moscow Stock Exchange auction, for the first time since the beginning of the month, the dollar reached 92.6 rubles and the euro reached 104 rubles. But after the regulator’s decision, the national currency went into decline. The dollar was trading at 98 rubles, the euro – 107 rubles. According to the exchange at 15:30 Moscow time, the dollar is 98.25 rubles, the euro – 107.2325 rubles.
Formerly socialbites.ca saidHow a sharp increase in the key rate will affect the life of Russians.