The ruble plummeted another 13% on the dollar today as the Russian central bank hikes key rates.
The announcement from the RCB that the key interest rate would rise to 17%, effective today, comes hard on the heels of the rate increase to 10.5% only last week.
The ruble fell against the dollar to 63.37 on Monday; Russia then closed trading due to the fall. Today, before opening trading, the interest rate was raised and the ruble spiked 10%, since then it has fallen 13% to 66.30.
The decision was taken as Putin’s government tries to sustain the Russian currency against the negative effects of the lowest oil prices in 5 years and the fall-out from sanctions over the Ukraine crisis. The press release from the Russian Bank stated that the, “decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks.”
The bank also announced their decision on loans and foreign exchange liquidity. The statement reads, “From 16 December 2014 in order to strengthen the efficiency of monetary policy loans secured by non-marketable assets or guarantees for 2 to 549 days will be provided at a floating interest rate, set at the Bank of Russia key rate level, increased by 1.75 percentage points (up to the present these loans for 2 to 90 days were provided at fixed rate).
Moreover, for further expanse of credit institution ability to manage their foreign exchange liquidity it was decided to increase maximum allotment amount for 28-day FX REPO auctions from 1.5 to 5.0 billion USD and to conduct 12-month FX REPO auctions on weekly basis.”
Some rates for specialized refinancing instruments however, have been exempt from the key rate increase. Loans secured by the pledge of receivables on loans extended to fund investment projects, and loans secured by bonds placed for investment project funding and included in the Bank of Russia Lombard List are both set at the key rate level less 8.00 percentage points - at 9.00% per annum.
Keeping the ruble sustainable is now Putin’s biggest task if he is to maintain his popularity and to date the state-run bank has spent $80 billion this year trying to underpin the ruble. However, expectations for contraction in the Russian economy are likely to be close to 4.5% for 2015, especially if oil gives an average price of $60 per barrel, the sustainable level for Russia to maintain its national budget. Russia pumps approximately 10 million barrels a day, about 10 percent of global output.
In the meantime, the US is pushing a bill through US Congress to bring tougher sanctions on Russia because of Ukraine, though President Obama is hesitant to sign without the EU pursuing equal sanctions.
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