Russian Ruble Continues To Slide
Russia's Fifth Rate Increase Fails to Halt Ruble's Slide to Record
by Olga Tanas, Anna Andrianova and Ksenia Galouchko
Russia's fifth interest-rate increase this year failed to stem the ruble's worst rout in 16 years, risking further damage to an economy battered by sanctions and oil prices near the lowest since 2009.
The Bank of Russia increased its key rate to 10.5 percent from 9.5 percent, according to a website statement. That matched the median estimate of 34 economists surveyed by Bloomberg. The ruble traded 0.7 percent weaker at 55.24 per dollar at 3:27 p.m. The bank is holding a news conference on the rate move.
"This is a spineless decision," Vadim Bit-Avragim, who helps oversee about $4 billion at Kapital Asset Management LLC in Moscow, said by phone. "If the central bank's goal was to defend the ruble, it would've raised rates by 2-3 percentage points."
The rate increase shows the narrowing options left to policy makers after they spent about $80 billion on defending the currency and shifted to a free-floating exchange rate ahead of schedule last month. The central bank has said it's ready step in at any time to prop up the ruble amid a depreciation that's wiped out 40 percent of the currency's value this year. Its reserves fell $4.3 billion last week to $416.2 billion.
A weaker ruble, coupled with an increase in inflation expectations, "pose substantial" risks to price growth, the central bank said today.
More Tightening?
"In case of further aggravation of inflation risks, the Bank of Russia will continue to raise the key rate," policy makers said in the statement. "Accelerated consumer-price growth is driven by ruble depreciation in the second half of 2014."
The rate increase comes a week after President Vladimir Putin told the central bank and the government to take "harsh" coordinated measures to deter speculators and steady the currency market. The ruble is the world's worst performer this year after Ukraine's hryvnia among more than 170 global currencies tracked by Bloomberg.
The central bank, led by Governor Elvira Nabiullina, has resorted to higher rates after Putin's incursion into Ukraine's Crimea in March, even as the economy of the world's biggest energy exporter lurches toward its first recession since 2009. The central bank said today it estimates economic growth in 2015-2016 at "close to zero." Inflation will be at about 10 percent by year-end, it predicted.
The central bank wants to slow inflation to its medium-term target of 4 percent. Consumer-price growth last month accelerated to 9.1 percent from a year earlier, the fastest since June 2011.
Enlisting Companies
Prime Minister Dmitry Medvedev said yesterday the government is in talks with large companies to even out their sales of foreign revenue after urging exporters to convert more of their currency income to help stem the ruble's tumble.
Today's decision "is not enough to stabilize the ruble and increases the risk of a full-scale currency crisis," Piotr Matys, a currency strategist at Rabobank International in London, said by e-mail. "The central bank may intervene more aggressively on the market, but selling hard currency already proved to be an insufficient tool, as reflected in the worst ruble rout since the 1998 crisis."
While the devaluation is eroding consumer purchasing power, a mainstay of Russia's (RSX) economic recovery since the 2008-2009 crisis, there's no reason for a "special hysteria," Medvedev said yesterday in an interview with Russian television.
"We all just need to be patient to make it through this difficult period and look to the future," he said.
Courtesy of Bloomberg.com