Russia's rouble gives up intraday gains after 350 bp emergency rate hike

Russia's rouble gives up intraday gains after 350 bp emergency rate hike

The extraordinary rate meeting came after the rouble plummeted past the 100 threshold against the dollar on Monday and the Kremlin criticised the central bank’s monetary policy.

The Kremlin said loose money policy was to blame for the weakening rouble, which has also been dragged down by the impact of Western sanctions on Russia’s balance of trade as military spending soars.

By 0816 GMT, the rouble, which has lost more than a fifth of its value against the dollar since the Ukraine war began, was 0.2% weaker at 97.82 per dollar.

It reached a near 17-month low of 101.75 on Monday and briefly traded at 92.60 on Tuesday morning, swinging wildly as the market reacted to the central bank’s sudden intervention.

It had gained 0.2% to trade at 106.93 versus the euro and was steady at 13.39 against the yuan.

The central bank’s most recent previous emergency hike came in late February 2022 with a rate raise to 20% in the immediate fallout of Russia’s invasion of Ukraine. After that, the bank steadily lowered the cost of borrowing before quickening inflation forced a 100-basis-point hike to 8.5% last month.

“The central bank has all the tools to normalise the situation in the near future,” President Vladimir Putin’s economic adviser Maxim Oreshkin said on Monday. “It is in the interests of the Russian economy to have a strong rouble.”

The rouble has raced a turbulent course since Russia invaded Ukraine in February 2022, slumping to a record low of 120 against the dollar a month later before recovering to a more than seven-year high a few months later, supported by capital controls and surging export revenues.

While Putin has repeatedly hailed the resilience of Russia’s $2 trillion economy, the strains of fighting the biggest land war in Europe since World War Two and what the West casts as the toughest sanctions in history are starting to bite.

The weakening rouble has pushed up prices for a host of everyday items ahead of a presidential election in March 2024, though higher interest rates would make life harder for borrowers, including companies and the government as it finances military operations in Ukraine.

Brent crude oil, a global benchmark for Russia’s main export, was down 0.3% at $85.92 a barrel.

Russian stock indexes, which hit a pre-invasion high on Monday, were higher.

The dollar-denominated RTS index was up 1% to 1,019.1 points. The rouble-based MOEX Russian index was 0.3% higher at 3,141.5 points.

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