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Russia is racing to stem a rally in the ruble and is set to accelerate interest-rate cuts as the currency's advance to a four-year high against the dollar damages government finances and exporters.
The central bank will hold an unscheduled meeting Thursday, where analysts expect it will announce another dramatic monetary step to tame the world's best-performing currency this year. The institution didn't comment on options on the agenda, but officials have said further rate cuts are likely as inflation has declined since an emergency rate hike in the days after Russia's Feb. 24 invasion of Ukraine.
Despite the sweeping sanctions imposed on Russia, surging exports and capital controls that have sapped demand for foreign exchange have sent the ruble soaring to the highest levels since 2018. Efforts by the authorities to slow the gains, including two rate cuts in April and the easing of key capital controls earlier this week, so far haven't helped.
The currency's appreciation has dominated President Vladimir Putin's discussions with economic officials, Kremlin spokesman Dmitry Peskov said on a conference call.
"The strengthening of the ruble is a matter for the special attention of the government," Peskov said, without providing details. "Macroeconomic stability is ensured."
The urgency of the situation has fueled expectations of a major move Thursday. The benchmark is currently at 14%, and TD Securities expects it will be slashed by 300 basis points, versus an earlier prediction of 100 basis points in June. Oxford Economics expects 500 basis points, which would take the rate back to single digits.
"There is no point in calling an emergency meeting and announcing it to the market unless they are thinking of a large cut," said Tatiana Orlova at Oxford Economics. "I wouldn't even be surprised at a 700 to 800 basis-point cut."
The decision will be announced at 10:30 a.m. Moscow time, but there will be no news conference, the bank said. The next scheduled meeting wasn't due until June 10.
The Russian currency extended gains after the announcement, albeit at a slower pace than on previous days. The ruble was up 1.3% against the dollar and traded 1.4% stronger versus the euro as of 1:53 p.m. in Moscow. It's gained about 33% against the dollar this year, more than any other currency.
"The ruble's rise has reached the pain threshold," said Dmitry Polevoy of Locko Bank. The likely easing "is unlikely to stop the strengthening of the ruble right now," he added, because it's driven by a huge trade surplus.
The central bank already delivered a bigger-than-forecast cut of 300 basis points at its last meeting in April. It also lowered rates by the same amount at another unscheduled meeting earlier that month. That reversed part of the emergency hike delivered after the attacks started on Ukraine.
"A strong ruble provides the CBR with confidence to cut rates further in order to ease the burden on the economy, which is under pressure from the Western sanctions," said Piotr Matys, an analyst at InTouch Capital Markets Ltd.
Russian authorities may also use Thursday to announce the removal of some capital controls to allow more two-way flows in currency movements, according to TD Securities.
"The currency is no longer a free float and the exchange rate mostly reflects trade balance flows mostly due to Russian exports of hydrocarbons," said Cristian Maggio, head of portfolio strategy at TD Securities in London. "It won't be possible for most subjects to exchange rubles for dollars at the levels shown on screen. This won't change as it is the result of Western sanctions, but perhaps some restrictions may be softened on the Russian side."
The Bank of Russia's priorities have been shifting to provide support for an economy derailed by the international sanctions.
But the spotlight is now on the ruble. The Economy Ministry said this week that the currency's strengthening was nearing a peak, noting that further rate cuts would help ease the pressure.
"This meeting and the rate cut are a part of the solution but not the only one," said Guillaume Tresca, a senior emerging-market strategist at Generali Insurance Asset Management. "They just want to front load the easing and limit the ruble appreciation. It is a pragmatic approach."
(Adds comments by Kremlin spokesman in fourth and fifth paragraphs, InTouch Capital in 12th)
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