Russia’s central bank failed to stem a further dramatic fall in the rouble on Thursday despite raising the headline interest rate to 10.5%.
The currency slid more than 1.5% against the dollar in a day of fevered trading that reversed a short-lived rise in the currency’s value earlier in the week.
The central bank, which has used billions of dollars worth of foreign reserves in a desperate attempt to prop up the rouble, appeared impotent as it sought to lift the gloom over an economy hit by western sanctions and falling oil prices.
Russians have suffered two big rate rises in two months – the latest a full percentage point – aimed at wooing investors tempted to sell their Russian assets and take cash out of the country.
But the plan has proved weak and unable to reverse a trend that started in the summer when oil prices began to tumble. Oil revenues account for about 45% of government revenues and, with gas, account for 70% of exports.
In all the rouble has sunk by more than 40% this year as Russia has been buffeted by sanctions over its role in the Ukraine crisis and a near-50% fall in the oil price.
By the end of the day Brent was hovering around $64 a barrel, down from more than $105 at the start of the year.
Russia’s dependence on oil let it build huge reserves of foreign currency before 2008 and in the price boom of 2011-12. But companies used their improved credit rating to borrow funds in dollars, forcing them to the pay higher interest bills as the value of the US currency climbed.
So far the central bank has refused requests for subsidies to help with private-sector interest bills, but some corporate leaders have warned that their companies may go bust without state support.
Nick Spiro, a bond expert at Spiro Sovereign Strategy, said the central bank was unable to control events, despite spending about $100bn (£64bn) of its $400bn foreign reserves since July.
via The Guardian
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.