Ruble Faces Pressure as Central Bank Hikes Rate to 12 Percent
The ruble weakened against the dollar and euro after the Central Bank of the Russian Federation lifted the key rate to 12% annually, a move seen as part of broader steps to tighten currency controls. This view was shared by Dmitry Babin, a stockbroker with BCS Mir Investments, during an interview with socialbites.ca.
“The decision to raise the policy rate by 3.5 percentage points right away came as a surprise. Most analysts anticipated a more modest adjustment. Still, the ruble declined sharply after a brief period of initial strengthening. The pressure on the currency likely reflected expectations that the Federal Reserve would tighten currency controls as well. There was even talk of reclaiming a portion of export proceeds, which would then have to be sold on the domestic market,” Babin explained.
Nevertheless, the expert cautioned that navigating such measures would be challenging. Sanctions risks surrounding transactions with export earnings could complicate the implementation of any policy shifts aimed at channeling funds back into the economy.
According to Babin, the recent ruble weakness is driven more by a surge in domestic demand and a buildup of credit risk than by the level of interest rates alone. He noted that a sustained recovery would require addressing multiple headwinds: an ongoing shortage of foreign exchange due to reduced export receipts, incomplete remittances back to the country, and the friction encountered by payments from friendly nations in rubles and in less liquid currencies.
“Capital outflows remain a persistent concern, even as some factors appear weakly tied to the current rate setting. The ruble could receive support as the tax period approaches, which has historically helped stabilize the currency. However, this time the influence of exporters’ financial settlements might be more pronounced, especially if higher crude prices encourage larger foreign-currency sales by exporters,” Babin said.
On Tuesday, just before the Central Bank’s extraordinary meeting, the ruble shown temporary strength in early trading. In the Moscow Exchange auction, the dollar touched 92.6 rubles and the euro 104 rubles for the first time in the month. Following the central bank’s decision, the ruble fell again, with the dollar around 98 rubles and the euro near 107 rubles. By 15:30 Moscow time, the dollar stood at 98.25 rubles and the euro at 107.2325 rubles, signaling renewed pressure on the currency after the announcement.
Overall, market observers are watching how export payments, oil prices, and policy signals will interact in the coming weeks. The central bank’s move to raise the rate reflects a cautious stance toward inflation and financial stability, while investors weigh the potential spillover effects on liquidity, sanctions risk, and the broader economy. The evolving dynamic between reserve requirements, currency controls, and global commodity markets will continue to shape the ruble’s trajectory in the near term.
[citation: socialbites.ca]