Russian Central Bank tries to inspire ruble weakness

Bank of Russia, CRFIN, Russian Forex law17 May, Lagos — The ruble trouble began again on Thursday after the Russian Central Bank decided to take action to purchase $100-200 million in foreign currency daily.This caused the ruble to dip sharply on Thursday. This decision may have been inspired by the fact that the central bank believes that the ruble has strengthened enough, therefore trying to propagate ruble weakness.

On Friday, the Russian apex bank announced that it had purchased $181 million in foreign currency on May 13, the first day of these interventions. This inspired the ruble to strengthen against the dollar and euro after the previous fall on Friday. As at 08:20 GMT the ruble was 0.1% stronger against the dollar at 50.07 and 0.4% stronger at 57.00 against the euro. The reaction of the currency seems to have been relatively muted considering the Central Bank’s announcement had been negative for the ruble. Normally, it is expected that the ruble should weaken on such an event. Even the Russian stock indexes were stronger on Friday, seen as a carry over effect from a rally in US markets on Thursday, lifting global markets.

Some market pundits commented thus about the reaction of the ruble:

Forex Club analyst Alena Afanasiyeva coomented in a note to the Moscowtimes that: “It’s worth noting how the pressure on the ruble has exhausted itself. Investors began to sell the Russian currency as a reflex reaction, but after analyzing the situation more deeply came to the conclusion that in fact replenishing reserves will serve to stabilize the Russia economy.”

According to analysts at VTB Capital, they said that: “The impact of the Central Bank interventions was marginal because of their small size. “However, sentiment-wise it creates a somewhat negatively skewed basis for the ruble. Besides we suppose that pressure on the ruble might mount due to other factors: the looming increase in external debt redemptions, dividend payments and seasonally higher demand for FX from the population.”

The Central bank’s effort to regulate the present state of the economy has been endless. Back in April, the Russian Central Bank announced another cut in its key interest rates down to 12.5% from 14% per annum. The motive behind this determination was due to the result of lower inflation risks and persistent risks of considerable calmness in general economic activities.

Share Your Opinion, Write a Comment