The Russian Central Bank is meeting this week, on Thursday, to discuss interest rates.
The prospect of increasing interest rates is an attempt to save the sinking ruble. Currently, the Russian interest rate is 9.5%. Analysts are expecting a rise to anything from 9.75% to 13.5%.
Inflation in Russia was recorded at 9.1% last month as sanctions on imports and the crashing national currency increased domestic prices. The Economic Development Ministry is not expecting prices to stabilize sooner than the end of Q1 of 2015 and there are also expectations of a recession for Russia next year.
The ruble slump is putting pressure on the Russian Central Bank to take action and increase interest rates. At the end of October it already raised rates from 8% to 9.5% in an attempt to stop the ruble sliding against USD and EUR. Unfortunately, this did not stop the Russian currency from continuing its value loss.
Piotr Matys, rates strategist at Rabobank, quoted by Business Insider said:
“I expect the Bank of Russia to raise its base rate to 12% from 9.5%. The rouble rout not only worsened the outlook for inflation, but more importantly poses a major threat to financial stability in Russia. Fairly aggressive interest rate hikes should prove a far more efficient tool to finally discourage speculators and stabilise the battered rouble rather than large scale FX interventions. Admittedly, such a strong dose of monetary policy tightening would have serious negative implications for the Russian economy. However, at this stage of the crisis stabilising the rouble should be priority with the economy already heading for a recession.”
Tatiana Orlova, Russia economist at RBS, and Per Hammarlund, emerging markets strategist at SEB, also believe that Russia will increase its rates on Thursday, but only to 11%.
The central bank admitted that it had intervened again in currency markets spending over $1.9 billion on Monday to support the ruble. So far in December alone it has spent over $4.5 billion to support the national currency, despite announcing the movement to free float last month. Markets are slowly losing faith in the Russian Central Bank’s ability to stabilize the ruble.
USDRUB currently trading at 54.35, 45.67 this time last month, and 40.13 on the 10th of October.
MT4 CHART: USDRUB
EURRUB situation is quite similar: 67.35 today, 57.12 this time last month and 51.28 on the 10th of October
MT4 CHART: EURRUB
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