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Russian ruble back on downside trend, despite rate hike

October 31, 2014, 19:30 UTC+3 MOSCOW
The Russian Central Bank announced on Friday it had raised its key one-week repo rate to 9.5% from 8% amid accelerating inflation, weakening ruble and tighter western sanctions
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© Artyom Korotaev/TASS

MOSCOW, October 31. /TASS/. The Russian ruble resumed its fall against the US dollar and the euro on the Moscow Exchange on Friday, despite the regulator’s decision to raise the key rate by 150 basis points.

As of 5:11 p.m. Moscow time (1:11 p.m. GMT), the US dollar rose by 1.38 rubles to 43.03 and the euro climbed by 1.43 rubles to 53.85.

The Russian Central Bank announced on Friday it had raised its key one-week repo rate to 9.5% from 8% amid accelerating inflation, weakening ruble and tighter western sanctions.

The ruble, which had been depreciating rapidly in recent weeks, swung to strong growth after the news on the rate hike but soon restarted its fall against the US dollar and the euro.

The regulator’s rate hike on Friday was more than expected but this was not a shock event, Sberbank CIB Senior Strategist Vladimir Pantyushin said.

Most analysts expected the regulator to raise the key rate by 50 basis points to 8.5%

The ruble appreciated on Friday immediately after the rate hike decision because market participants came to think at some moment this was more than expected, the expert said.

Nevertheless, this was not the main factor for the ruble, he added. “This cooled off the speculative attack on the ruble to some extent but the Central Bank’s decision is not enough for fundamental changes,” Pantyushin said.

Central Bank’s rationale for rate hike

The Russian regulator said in a statement that both internal and external factors prompted its decision to raise the key rate by as much as 150 basis points.

External conditions changed considerably in September-October: world oil prices slumped and some Western countries tightened their sanctions against major Russian companies, the regulator said, giving motives for its rate decision.

“In these conditions, the ruble was weakening and this factor, along with restrictions imposed on the imports of some foodstuffs in August, contributed to further accelerated growth in consumer prices,” the regulator said.

Experts polled by TASS ahead of the Central Bank’s policy meeting said they expected the regulator to increase the key rate amid the ruble’s devaluation and rising inflationary expectations: 9 out of 15 economists said they expected the rate to be raised to 8.5% while others said the rate would climb to 8.25% or 8.75%

Four experts said the regulator would not change the rate as this decision’s effect on inflation was not obvious while risks for the national economy were high.

At its previous policy meeting on September 12, the Central Bank of Russia kept the key rate unchanged at 8%, although experts expected a slight rate increase from the regulator.

The Russian Central Bank raised the key rate three times this year: to 7% from 5.5% in March, to 7.5% in April and to 8% in July.

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