Russia takes steps to strengthen the rouble

Russia plans

Russia is planning new measures to stabilise the rouble to try to stem its recent slump against the dollar.

Russia plans

Its central bank said, if necessary, it would provide additional capital to Russia’s banks and financial companies.

The rouble has regained ground from Tuesday’s all-time low, although trading remains edgy and volatile.

The announcement left the currency 10% higher against the dollar.?One US dollar bought 62 roubles, far fewer than the record low of 79 on Tuesday.

Russia also said it would hold more foreign exchange auctions if needed.

“These measures are intended to balance supply and demand on the foreign exchange market, which will help stabilise the rouble rate more quickly,” said the Russian central bank’s first deputy governor, Ksenia Yudayeva.


The rouble has been hit by worries over the Russian economy, which has been affected by cheaper oil and sanctions.

A drastic 6.5 percentage point rise in Russian interest rates to 17% early on Tuesday failed to halt the slide in the currency.

The rate rise, which was meant to strengthen the rouble, helped it to hit 58 to the dollar early on Tuesday but the rate then collapsed to a record low of 79.

As a result, Russia’s Finance Ministry said that it was intervening in the market and that the currency was “undervalued”.

It also gave details of the amount it spent on such action, saying it had spent almost $2bn on Monday in an attempt to stop the rouble sliding.


Deputy finance minister Alexei Moiseyev said Russia was going to sell foreign currency from its treasury accounts “as much as necessary and as long as necessary”.

“At least the Russian authorities have figured out that letting your currency drop 10% one day, more or less 20% the next peak to trough… might not be such a good idea in terms of financial security… and are finally beginning to join up the dots, and think collectively, to try and re-assure markets,” Timothy Ash, head of emerging market research at Standard Bank in London, said in a research note.

‘Emotional games’

Neil Shearing, chief emerging markets economist at Capital Economics, said the move was welcome, although there was no guarantee it would reverse the damage.

“It… remains to be seen whether this is a turning point, but the authorities do at least seem to be taking steps to limit the risk of a complete meltdown in the banking sector,” he added.

There is not much more Russia can do to prop up its currency, which has only been allowed to move in line with the world’s currency markets in the past year.

Capital controls, where money is restricted from moving out of the country, are the main, final option.

But earlier the Russian Prime Minister, Dmitry Medvedev, ruled that out.

Speaking at an emergency meeting of of ministers and industry leaders, Mr Medvedev said he was confident that Moscow could contain the crisis: “Central bank and the government have worked out a package of measures to stabilise the situation. What we are seeing today is mainly emotional games.

“It is in our interests to bring order to the markets, no one gains from instability. But at the same time, there is no need for tough regulations, as used to happen in the past. It does not bring anything good – we shall use market tools.”


There were also reports of Russians flocking to the shops in a frantic attempt to spend their roubles before prices shoot up. Many were buying cars and home appliances.

A warning from the furniture store Ikea that it would raise prices on Thursday has already resulted in long queues at its store in Moscow.


The rouble has lost more than half its value against the dollar this year, hit by Western sanctions and the fall in the oil price which have both weakened the Russian economy.

Russia’s economy is expected to shrink next year, although the amount by which it does is closely linked to the price of oil, with the economy rising or falling in line with that.

On Wednesday, the benchmark price of?Brent crude oil?was down 20 cents at $59.66 a barrel. On Tuesday, the Brent price had fallen below $59 before recovering.

US President Barack Obama is expected to sign legislation this week authorising new economic sanctions on Russia.

However, the German government’s co-ordinator for relations with Russia, Gernot Erler, said oil prices, and not sanctions, were the reason the Russian economy was struggling.

“It’s an illusion to think that if the sanctions were to fall away tomorrow, the Russian economy would suddenly be all right again,” he said.

Source BBC

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