The ruble fell in price on the Moscow Exchange on Friday after the Bank of Russia decided to raise its key rate for the third time in a row.
The dollar, which began trading at 71.8, dropped to 71.55 rubles in the first minutes after the release of the Central Bank, where the regulator announced a rate increase to 5.5% per annum and announced the continuation of the tightening cycle, which has already become the sharpest since 2014 ( by 1.25 percentage points in three months).
But the ruble’s jump to a new maximum since July 2020 immediately turned into a sale, which neutralized the entire morning growth and threw up the dollar exchange rate by 49 kopecks in four hours.
By 17.30 Moscow time, transactions calculated tomorrow were concluded at 72.04 rubles per dollar. The euro exchange rate, which fell to 86.9450 rubles during the day, rose to 87.25 rubles, although it remained in the red against the close of Thursday.
By raising the key rate by 50 bp. for the second time in a row, the Central Bank noted the risks of accelerating inflation, which, according to the regulator’s forecast, will not return to the target of 4% until the second half of 2022. During the meeting of the Board of Directors, the option of raising the rate by 1 percentage point at once was discussed, the head of the Central Bank Elvira Nabiullina said at a press conference.
She added that the Central Bank’s rate may turn out to be above 6%, and the monetary policy from neutral – to become moderately tight.
In the short term, the decision of the central bank is positive for the ruble, says Dmitry Dolgin, chief economist at ING for Russia and the CIS: the high profitability of ruble rates will attract foreign investors working on carry-trade operations.
On Friday, non-residents bought long securities at the public debt market, LockoAM writes. And the RGBI index interrupted the 9-day fall and rebounded by 0.42% – the maximum in two months.
But in the medium term, the rate hike will not help the ruble in any way, Dolgin believes: “The tightening of the approach to the nominal rate is caused by the deterioration of inflationary expectations, that is, in real terms, the rate does not increase.”
The sale of the ruble is the result of fixing positions upon the decision of the Central Bank, which was expected by the market, notes Dmitry Babin, an expert at BCS Express. The rate is under pressure from the deterioration of the external background, primarily the active growth of the dollar against major currencies, he adds.
The dollar index to 17.54 Moscow time adds 0.45% to 90.459 points and is at a maximum for a week, pushing down the currencies of emerging markets. The Brazilian real is depreciating by 1.45%, the South African rand – by 0.67%.
The market continues to “digest” data on inflation in the United States, which in May became a record for 13 years, and according to some metrics reached its peaks since the Ronald Reagan administration. Thus, the highest since 1982 was the growth in prices for goods (+ 6.5%), as well as the three-month core inflation recalculated for a year (8%).
The more the inflation cauldron heats up, the closer the point is when the US Federal Reserve will begin to roll back the quantitative easing program, in which it pours $ 120 billion into the markets every month. Fedrezrev continues to insist that inflation is temporary, but it’s getting harder to believe, said Lewis Grant, asset manager for Federated Hermes.
“It takes courage to go against the Fed, but it gets harder to hold on as inflation (in the US) approaches 5%,” he says.