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| Rouble up 10% after Russian central bank announces measures to ease crisis | |
| (about 1 hour later) | |
| The rouble rose 10% on the foreign exchanges after Russia’s central bank announced a range of measures to ease pressures on its struggling commercial banks. | |
| In an effort to reverse the currency’s precipitous decline, the central bank said it would relax accounting standards, allow banks to disguise the true extent of their losses, and allow them to value their assets in the third quarter of 2014, before the currency turmoil began. | |
| The central bank also said that together with the finance ministry it was planning to pump more capital into the banks during 2015. | |
| The move came on a day that saw the first signs of Kremlin concern about the plunging rouble when the Russian prime minister sought to assure the country that Moscow had the tools to cope with a currency that had fallen below its “comfort” level. | |
| Dmitry Medvedev’s intervention came as part of a concerted attempt by the authorities to prevent a fresh fall in the rouble on the foreign exchanges, with both the central bank and the finance ministry using their reserves to bolster the ailing currency’s value. | Dmitry Medvedev’s intervention came as part of a concerted attempt by the authorities to prevent a fresh fall in the rouble on the foreign exchanges, with both the central bank and the finance ministry using their reserves to bolster the ailing currency’s value. |
| Analysts said Moscow’s action had led to an uneasy calm in still turbulent financial markets, reversing an early fall in the value of the rouble. | Analysts said Moscow’s action had led to an uneasy calm in still turbulent financial markets, reversing an early fall in the value of the rouble. |
| By lunchtime in London, the rouble was trading at 67 to the dollar, stronger than the low of 80 it reached during its freefall on Tuesday but below its level when the Russian central bank raised interest rates from 10.5% to 17% earlier this week. | By lunchtime in London, the rouble was trading at 67 to the dollar, stronger than the low of 80 it reached during its freefall on Tuesday but below its level when the Russian central bank raised interest rates from 10.5% to 17% earlier this week. |
| Russia’s policy elite had been playing down the seriousness of the currency collapse, but amid growing concerns that the crisis will trigger bank runs and corporate failures it changed tack on Wednesday with a four-pronged show of strength. | |
| First, the finance ministry said it would deploy $7bn (£4.5bn) of its reserves to defend the rouble. This was followed by a televised cabinet meeting in which Medvedev said Russia had the resources to cope. Then there was further intervention by the central bank and its subsequent announcement of measures to help the banks. | |
| “All the economic and production goals that you have set yourselves, the country has the currency resources to achieve them,” Medvedev said. | “All the economic and production goals that you have set yourselves, the country has the currency resources to achieve them,” Medvedev said. |
| He also made it clear that the government had no plans to use capital controls, saying: “We act on the basis that our future actions must be based on market mechanisms. There is no point in bringing in the extremely harsh regulation in this sphere that there was at one time. It doesn’t lead to anything useful.” | He also made it clear that the government had no plans to use capital controls, saying: “We act on the basis that our future actions must be based on market mechanisms. There is no point in bringing in the extremely harsh regulation in this sphere that there was at one time. It doesn’t lead to anything useful.” |
| Nicholas Ebisch, currency analyst at Caxton FX, said: “The finance ministry of Russia is now echoing the central bank’s calls that the rouble is undervalued against its major trading partners. This move is the next phase of attempts to strengthen the currency to stop the rouble’s slide, which has alleviated the rouble for the time being, although exchange rates with other currencies remain volatile. | Nicholas Ebisch, currency analyst at Caxton FX, said: “The finance ministry of Russia is now echoing the central bank’s calls that the rouble is undervalued against its major trading partners. This move is the next phase of attempts to strengthen the currency to stop the rouble’s slide, which has alleviated the rouble for the time being, although exchange rates with other currencies remain volatile. |
| “However, this move is akin to putting a plaster on the wall of a dam that is about to burst. The underlying economic strength of Russia’s economy is still in grave doubt as oil prices slide yet again to a new low of $55 per barrel.” | “However, this move is akin to putting a plaster on the wall of a dam that is about to burst. The underlying economic strength of Russia’s economy is still in grave doubt as oil prices slide yet again to a new low of $55 per barrel.” |
| In the commodities markets, the cost of a barrel of Brent crude fell 1.8% at just under $59, while US light crude was 2.6% lower at $54.50. Oil prices have almost halved since the summer. | In the commodities markets, the cost of a barrel of Brent crude fell 1.8% at just under $59, while US light crude was 2.6% lower at $54.50. Oil prices have almost halved since the summer. |