The ruble dropped to the weakest level since
panic swept across Russian financial markets last month after a
surprise interest-rate cut signaled the central bank no longer
considered tackling inflation its primary task.
The currency fell as much as 4.3 percent to 71.8465
after borrowing costs were reduced by 200 basis points to 15
percent.
The decision underpins the pressure central bank Governor
Elvira Nabiullina has come under from government and banking
executives to lower borrowing costs that risk deepening a
recession as oil slides and fresh sanctions over Ukraine loom.
Herman Gref, the head of the nation’s biggest lender, OAO
Sberbank, this month warned of an “extremely widespread”
banking crisis, while his counterpart at VTB Group, Andrey
Kostin, urged policy makers to lower rates to 10 percent.
The Bank of Russia said monetary conditions are in place for inflation to “decline in the medium run,” predicting in a statement today that consumer-price increases will slow below 10 percent by next January. Inflation in the world’s largest energy exporter soared to a 5 1/2-year high of 11.4 percent in December, while analysts expect the economy of the world’s largest energy exporter to contract 4 percent this year.
“Cutting the rate by two percentage points will provide an opportunity to jumpstart lending to the real economy,” Nabiullina said in an e-mailed statement. “The key rate is still quite high at 15 percent and contributes to reaching medium-term inflation goals but doesn’t excessively cool the economy.”
The currency traded 2.8 percent weaker against the dollar at 70.70 by 3:25 p.m. in Moscow and fell 2.7 percent to 80.188 per euro.
“The immediate sharp negative reaction of the FX market
suggests that such a rapid U-turn could lead to a loss of
confidence in the central bank’s policy,” Tatiana Orlova, the
chief economist for Russia at Royal Bank of Scotland Group Plc
in London, said by e-mail.
“The negative ruble market reaction suggests that the cut was premature.”
