Interest rates could rise in the first quarter of next year, Bank Rossii chairman Sergei Ignatiev has indicated, saying he is not afraid of a strengthening rouble. “Inflation is beginning to worry us,” Bloomberg reports him saying. Annual price growth is set to reach 8.4 by year end, he estimated, having hit 8.1 per cent in November.
A weaker rouble in recent months has not helped, the chairman observed. A weaker rouble will make imports more expensive, driving up the price of imported goods. Today, however, the rouble closed at its strongest for two months against the euro-dollar basket, after Mr Ignatiev said the regulator wasn’t “afraid” of a stronger currency and would use interest rates to curb inflation. Rising interest rates make the rouble a more attractive purchase for investors. Read more
Want to buy RUB/CNY directly? May soon be a possibility, the Russian central bank has told Chinese ambassador Li Hui. Xinhua reports a statement of intent from deputy head, Victor Melnikov, to the effect that Bank Rossii is willing to co-operate with China to effect a direct currency exchange between rouble and yuan.
Both countries are keen to deepen “financial co-ordination and mutual investment”, according to state-run media Xinhua. Dr Melnikov noted the economic and strategic significance of a direct exchange between the two currencies; the Chinese ambassador echoed these sentiments, and was keen to support Sino-Russian co-operation in economic, energy and science projects.
** Updated: 16.54 – Confirmed by first deputy chairman Alexei Ulyukayev, according to Reuters, who said the move from 3 to 4 rouble-width boundary was part of the course of moving towards a policy of inflation targeting and a more flexible rouble exchange rate. He also said the central bank had reduced the size of interventions at the corridor’s boundaries to $650m from $700m.
Traders are reporting a widening of Russia’s exchange rate boundaries, as the currency hits an eight-month low. Bank Rossii, the country’s central bank, has been defending a ‘floating corridor’ of 33.4-36.4 roubles against a euro-dollar basket. To defend the range, the Bank would sell foreign currency when the exchange rate is in the upper third, 35.4-36.4 .
Bloomberg reports traders saying that Bank Rossii is no longer defending the 36.4 limit. Two traders are quoted as saying the corridor has been widened 50 kopeks in both directions, to 32.9-36.9. The Russian currency has weakened to 42.1875 against the euro in intraday trading, the lowest since early February (see chart). Read more
Both short- and medium- term rouble volatility will fall if the central bank gets its way. The Bank of Russia tweaked its currency interventions strategy yesterday, saying it would consider oil prices when working out how many roubles to sell.
A warning was also issued to forex speculators as the Bank said its currency interventions were “directed mainly at neutralising the firm expectations of forex market participants”. Oil price rises can heighten speculation of a rouble rise, as the Russian economy is heavily dependent on the stuff.
The rouble has greatly appreciated in recent months, and the Bank is still cutting interest rates and buying dollars and euros to counter the rise.
The Bank of Russia explained its intervention strategy thus:
The operations of the Bank of Russia on purchases/sales of foreign currency undertaken in excess of the set target volumes are directed at smoothing out the movements in the rouble’s exchange rate which are not determined by the influence of fundamental economic factors.
Russia’s rouble strengthening policy continues, with the lower boundary of its trading band now sitting at 34.65. The rouble is measured against a euro-dollar basket, and it is clear from the chart that the currency has strengthened more consistently against the dollar in the past 10 days.
Reuters is reporting traders who are reporting a $700m central bank purchase of foreign currency, which is an effective rouble sale, pushing down the currency. This is typically married with a 5-kopeck shift of the trading boundary. A kopech is a hundredth of a rouble. Read more
Russia is getting richer. The rouble is gradually being allowed to strengthen, which will allow Russians to import more, addressing their trade surplus. The process is being carefully managed, however, with the central bank cushioning each move.
Local dealers are again reporting a $700m purchase of foreign exchange with a 5 kopeck reduction in the floating rouble band boundary. (A kopeck is one hundredth of a rouble.) Read more