Energy Prices Driving Russian Policy Decisions

At central banks from Canada to New Zealand, prices of a wide basket of goods help determine the direction of interest rates. For Russia, increasingly, only one price matters: oil’s.Energy exports, already the lifeblood of the nation’s economy, may now be dictating monetary policy. The head of Russia’s central bank, Elvira Nabiullina says she checks the price of oil several times a day. Last year’s 46 percent plunge in crude prices is making it tougher for Russia to fulfill a plan to gradually introduce an inflation-targeting strategy this year with the aim of reducing price increases to 4 percent by 2017.

Nabiullina shocked everyone with a rate cut last month, just six weeks after raising borrowing costs to 17 percent — in an emergency fashion — from 10.5 percent as falling oil prices sent the ruble into a tailspin. When she brought the key rate back down to 15 percent, inflation was quickening — the January reading came in at 15 percent — and the ruble was sliding. The difference: oil prices seemed to have enjoyed a bit of a bounce.
“Movements in oil prices will continue to determine how much space the central bank has to lower interest rates from emergency levels,” Neil Shearing, chief emerging-markets economist at Capital Economics Ltd. in London, says in an e-mail.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza