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Russian ruble nears multi-year high after rate cut By Reuters

By on June 10, 2022 0

© Reuters. A woman holds Russian rubles in front of US dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration

(Reuters) – The ruble climbed on Friday to its highest level against the dollar since late May, near multi-year highs, after Russia’s central bank cut its key rate by 150 basis points to its pre-crisis level 9.5% and Moscow eased some capital controls.

The central bank, beating average expectations for a 100 basis point move in a Reuters poll earlier this week, said it would explore the possibility of further cuts as inflation slows from near highs. 20 years and economic contraction is looming.

Lower rates should put downward pressure on the ruble and support OFZ treasury prices, but the currency is still supported by capital controls that were imposed following Moscow’s decision to send tens of thousands of troops in Ukraine on February 24.

As of 2:25 p.m. GMT, the ruble had strengthened by 4% to 56.98 to the dollar, its highest level since May 25.

It gained 5.3% to trade at 59.92 per euro, also its strongest in over two weeks.

In the local debt market, 10-year OFZ Treasury yields fell to 8.84%, their lowest since Jan. 13. Bond yields move inversely to prices.

Governor Elvira Nabiullina said the bank adheres to its floating exchange rate policy despite currency restrictions.

She said the price of the ruble affects different economic actors in different ways: “Exporters are often interested in weakening the exchange rate, and importers in strengthening it.”

Vladislav Danilov, senior analyst at First AM, said the balance of exports and imports remained the main driver of the ruble rate.

RELAXATION OF CAPITAL CONTROLS

Alfa Capital analyst Alexander Dzhioev said the rate cut is unlikely to affect the ruble substantially, given restrictions on capital flows.

“Nevertheless, it should be noted that in combination with other factors, for example the abolition of mandatory sales of foreign exchange earnings by exporting companies, the currency may stop strengthening,” he said.

The Ministry of Finance said export-oriented companies no longer had to convert their foreign exchange earnings, effective immediately.

Analysts credited the foreign exchange requirement with helping stop a dramatic fall in the value of the ruble after Western governments froze about $300 billion in central bank foreign exchange reserves immediately after the start of the Russian military campaign.

Until May, Russian companies were required to sell 80% of their profits in hard currency, then 50%.

FOREIGN CURRENCY CALL IS WEAKING

Some major Russian banks are planning to charge fees on retail accounts in dollars and euros after authorities floated the idea of ​​negative interest rates on foreign currency deposits of corporate depositors, reducing their attractiveness and boosting the ruble.

“The ruble is likely to be supported by the declining attractiveness of savings in the currencies of ‘unfriendly’ countries,” SberCIB Investment Research said.

The central bank said it would investigate the legality of the banks’ plans, but Nabiullina said they posed no threat to financial stability.

On the stock markets, the RTS index denominated in dollars rose 4% to 1,261.3 points. Russia’s ruble-based MOEX index fell 0.6% to 2,281.2 points.