Russia’s rouble weakened to more than Rbs70 per dollar for the first time in almost two-and-a-half years on Monday, as investors extended a sell-off in the currency fuelled by concerns over the independence of its central bank.
The Russian currency traded as low as Rbs70.115 against the dollar, around 0.2 per cent lower on the day and its weakest since March 2016.
Emerging-markets assets have been under pressure for months, as a stronger buck has put pressure on dollar denominated debt in countries such as Argentina and Turkey.
Russia has little hard currency debt, a current account surplus, low inflation and benefits from rising oil prices, Goldman Sachs’ analysts note. But despite that, the country — and the currency — has come under additional pressure from US and EU sanctions, and domestic, as well as geopolitical, risks have been rising.
While the central bank governor Elvira Nabiullina has resisted cutting rates, prime minister Dmitry Medvedev last week called for rate cuts ahead of the next interest rate decision on Friday.
“This interference in monetary policy came at the worst possible time and has weighed heavily on the rouble,” said Commerzbank analyst Ulrich Leuchtmann in a note published last Thursday following Mr Medvedev’s intervention.
He asks: “Does Medvedev want to emulate the Turkish president, whose demands for low interest rates have caused his currency to crash? Remember: The rouble has lost from the beginning of the year to Medvedev’s statements almost 19% against the dollar, in August alone almost 10%.”
Ms Nabiullina pushed back against Mr Medvedev’s calls for looser monetary policy, reasserting the central bank’s independence. But, Commerzbank added, “Without Medvedev, the rouble might have been able to recover with Nabiullina’s statements. In the end, Medvedev destroyed part of the confidence that the central bank had laboriously earned. Bank Rossii must – if the EM-wide devaluation pressure continues – react more strongly with monetary policy measures, which could increase negative side effects on the real economy.”