Russia has taken steps to support the banking system and stem a sharp fall in the value of the rouble that is threatening to plunge the country into a painful economic recession.
In an announcement that prompted a slight rally in the rouble late yesterday the Russian Central Bank said it was preparing to pump capital into domestic banks to help them honour their foreign debt obligations in 2015.
The measures were intended to balance supply and demand and help stabilise the rouble rate as soon as possible, Ksenia Yudaeva, first deputy governor of the central bank said in a statement.
Separately, the bank also said it would hold more foreign currency auctions if needed and impose a temporary moratorium on the reevaluation of Russian banks’ risk-weighted assets. At the end of a day of volatile trading, the rouble closed at 62 to the US dollar yesterday, gaining 10 per cent on a record low the previous day.
The rouble has lost more than half its value this year after being battered by western sanctions and a fall in the world price of oil, Russia’s main source of foreign revenue. Capital flight has soared to more than $120 billion over the last 12 months as investors lose confidence in Kremlin policies.
Emergency move
Late on Monday night the bank hiked interest rates by 6.5 percentage points to 17 per cent in an emergency move that failed to halt an accelerating decline in the rouble. The bank’s decision to provide liquidity to the banks came as Kremlin policymakers battled to find a solution to the rouble crisis that if unchecked could fray popular support for President
Vladimir Putin
.
Dmitry Medvedev
, the Russian prime minister, called a meeting of financial and corporate chiefs where he appealed to oil and natural resource exporters not to roil the currency market with sudden sales of roubles.
Early yesterday the Russian finance ministry waded into the market with the sale of $7 billion of hard currency from its treasury accounts. Alexei Moiseev, Russia's deputy finance minister said the ministry was prepared to sell hard currency "for as long as was necessary" to help prop up the rouble.
Other powerful state entities appeared to be chipping in to the crisis management effort. Russia’s National Security Council said it had submitted a set of recommendations aimed at stabilising the currency market to Mr Putin, the central bank and the finance ministry.
Attention is now focused on what Mr Putin will say at his annual, televised press conference in Moscow today when the president is expected to comment on the rouble's plight.
Despite announcing plans to transition to a free float last month, the central bank has spent more than $10 billion of its foreign currency reserves in December, including $2 billion on Monday, in an unsuccessful effort to halt the rouble’s decline.Many financial analysts suspect the muddled response to the escalating rouble decline was the result of Kremlin interference in central bank policy making. So far officials have ruled out introducing capital controls that could in the worst case prevent Russian corporations from moving money out of the country to service foreign debts.
Tough measures
However,
Chris Weafer
, founding partner of Macro Advisory, a Moscow-based political and economic consultancy, said some tough measures, such as “forcing companies to repatriate their foreign earnings quicker or other restrictions on corporate activities might be put in place if the rouble market continued to be volatile and trending weaker”.
In a sign of how the rouble's collapse is affecting foreign companies, several car dealers halted sales of imported brands in Moscow yesterday. An announcement by Ikea that it would raise prices today prompted a rush on the Swedish furniture retailer's stores in the Russian capital.
