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Rouble up 10% after Russian central bank announces measures to ease crisis Rouble rise prompts hopes that Russian economic crisis is easing
(about 3 hours 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. Hopes rose on Wednesday night that Russia might be over the worst of its currency crisis after higher oil prices and measures to shore up struggling banks prompted a sharp rally in the value of the rouble.
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. Concerted efforts by the Kremlin, the Russian central bank and the finance ministry helped push the currency back to the level at which it started the week, ahead of Thursday’s opportunity for President Vladimir Putin to pronounce on the recent economic and financial turmoil at his annual press conference.
The central bank also said that together with the finance ministry it was planning to pump more capital into the banks during 2015. Putin said earlier in the month that a falling rouble was good for the Russian economy, but senior policymakers in Moscow showed on Wednesday how seriously they were taking the threat of a rouble freefall.
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. Putin’s prime minister, Dmitry Medvedev, sought to assure the country that Russia had the tools to cope with a currency that had fallen below its “comfort” level, while the finance minister said it was buying roubles on the foreign exchanges with $7bn (£4.5bn) of its reserves.
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. Later, 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. There are also plans to pump more capital into the banks during 2015.
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. Further respite for the rouble was provided when the cost of crude rose by $3 to $63 a barrel following news of lower inventories in the US. In New York trading, it cost just less than 60 roubles to buy a dollar compared to 80 roubles when the sell-off was at its height on Tuesday.
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. Even so, the rouble has lost around half its value against the dollar since the start of the year and the economic stability that has been the cornerstone of Putin’s promises to the Russian people appears seriously under threat. Analysts say falling oil prices have combined with structural problems and the effect of western sanctions to create a “perfect storm” that has battered the rouble. A hike in interest rates from 10.5% to 17% late on Monday failed to halt the slide, and the central bank has been burning through its foreign currency reserves in at attempt to stem the fall. The central bank has spent more than $80bn in foreign reserves this year propping up the currency.
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. Shops in Moscow are putting up prices rapidly to keep up with the plummeting rouble, and Apple closed its online shop in Russia. There has been a flurry of retail activity as Russians scramble to buy goods imported before the currency crash and still priced at the old rate. Others cancelled foreign holidays, realising how little their roubles were now worth abroad, while those with euro or dollar mortgages and loans are particularly exposed.
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. “In the last couple of days several people have come up to me and asked if I could find them jobs abroad,” said one western banker in Moscow. “And I’m talking about people who even a month ago were very patriotic and supportive of everything going on here.”
“All the economic and production goals that you have set yourselves, the country has the currency resources to achieve them,” Medvedev said. Kremlin watchers will be looking closely to see if Putin adopts a more conciliatory tone or comes out fighting on Thursdayt. In his state of the nation address earlier in the month, Putin was combative, blaming the west for trying to destroy Russia and justifying the annexation of Crimea as the return of “sacred Russian land”.
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.” Putin’s spokesman, Dmitry Peskov, said the president would not comment on the rouble before his press conference. Earlier this month, he blamed the rouble fall on speculators, whom he said would be identified and punished.
Medvedev said at a televised cabinet meeting on Wednesday: “All the economic and production goals that you have set yourselves, the country has the currency resources to achieve them.”
He added that the government had no plans to use capital controls.
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.” He said the underlying economic strength of Russia’s economy is still in grave doubt as oil prices slide.
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.