Bank of Russia Moves Up Rate Meeting With Ruble Rally Unabated

  • In Business
  • 2022-05-25 11:04:25Z
  • By Bloomberg

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Most Read from Bloomberg

  • Plot to Kill George W. Bush in Revenge for Iraq War Was Foiled, FBI Says

  • Biden Demands US 'Stand Up' to Gun Makers After Texas Attack

  • Texas Shooter Kills Elementary School Children

  • Hungary's Orban Declares State of Emergency Over War, Economy

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.

Capital Controls

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)

Most Read from Bloomberg Businessweek

  • The Thrill of Better Office Wi-Fi

  • Deadly Heat in India Is a Warning of Global Catastrophes to Come

  • It's TikTok's World Now. Facebook Just Tries to Make People Care About It

  • The Most Important Force in Food Has Nothing to Do With Fake Meat

  • Open With Care: That Next Power Bill Could Shock You

©2022 Bloomberg L.P.


More Related News

Tencent Leads China Tech Losses as Major Backer Plans to Cut Its Stake
Tencent Leads China Tech Losses as Major Backer Plans to Cut Its Stake

(Bloomberg) -- Chinese technology stocks fell as a plan by Tencent Holdings Ltd.'s major backer to further cut its stake in the company fueled concerns more ...

China to Ban Over One Million
China to Ban Over One Million 'Fake' Foreign A-Share Investors

(Bloomberg) -- China will ban more than one million mainland investors from trading onshore shares via the stock connect programs with Hong Kong, as...

Sri Lanka Under Virtual Lockdown With Fuel Supplies Halted for Private Cars
Sri Lanka Under Virtual Lockdown With Fuel Supplies Halted for Private Cars

(Bloomberg) -- Sri Lanka abruptly restricted fuel supplies and told residents to stay home, raising the risk of more unrest as the government struggles to...

Putin's Chechen warlord ally plans to bolster Russia's forces in Ukraine with 4 new battalions

Ramzan Kadyrov said on Telegram that he would assemble battalions comprising an "impressive number of personnel" to "replenish" Moscow's forces.

Beijing and Shanghai Back at Zero Covid Cases After Four Months
Beijing and Shanghai Back at Zero Covid Cases After Four Months

(Bloomberg) -- China's two largest cities have contained Covid-19 following a bruising four-month fight that saw millions of residents locked in their homes,...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply


Top News: Business