Russian rouble slides on Medvedev rate comments
Currency on track for weakest close since 2016
Russia’s rouble joined the ranks of emerging market currencies to descend to multiyear lows, with the currency on track to notch its weakest close since 2016.
The currency fell 1.6 per cent to RUB69.29 after prime minister Dmitry Medvedev called on the central bank to cut interest rates.
Russia is attempting to meet president Vladimir Putin’s ambitious growth and spending targets despite turmoil from global jitters on emerging markets and the possibility of new US sanctions.
Speaking at a finance ministry conference, Mr Medvedev said: “We need to move from neutral credit regulation to stimulating [growth]. Even despite all the success we’ve had in limiting inflation, rates are still quite high and in that sense we are counting on the Bank of Russia’s active position on that issue.”
The comments stand in contrast to the position of central bank governor Elvira Nabiullina, who toughened her rhetoric on rates earlier this week.
“There aren’t many factors in favour of cutting rates. There are a significant number of factors in favour of keeping them [at 7.25 per cent] and a few new factors have appeared that let us put the question of raising rates on the table,” she said.
Ms Nabiullina, whom Mr Putin has given broad autonomy after she stabilised the rouble following a 2014 crisis and cut inflation to 4 per cent, will announce the central bank’s rates decision next Friday.
The rouble’s fresh slide comes amid market expectations that Russia is at risk of another round of sanctions, following UK prime minister Theresa May’s announcement on Wednesday that two Russian intelligence officers were responsible for the Salisbury novichok attacks.
Rabobank analyst Piotr Matys said sentiments are also not being helped by growing concerns over the independence of Russia’s central bank
“While [central bank] Governor [Elvira] Nabiullina is well respected for acting decisively during the rouble crisis only a few years, Medvedev’s remarks may undermine the credibility of the central bank,” he said.
EM currencies are in the markets’ spotlight, with investors concerned that the sell-offs that afflicted the Argentine peso and the Turkish lira earlier this year were now spreading to others.
This week alone, the Indian rupee and the Indonesia rupiah dived to record lows, while the South African rand dropped to its lowest since June 2016. Other EM currencies under pressure include the Polish zloty and the Mexican peso, while several EM equity indices have suffered.
The rouble lost nearly 8 per cent of its value in two days in early April following the US announcement it was imposing sanctions on individuals and companies over alleged Russian interference in the 2016 US presidential election.
In a note before the latest rouble decline, Commerzbank analyst Tatha Ghose warned investors to “brace for greater rouble volatility” following Mrs May’s Salisbury statement.
“The findings have the potential to trigger additional sanctions because the US has anyway imposed a first round of sanctions for this act, and warned that the second round would be far more draconian,” he wrote.