News Analysis: Russia takes special measures amid ruble nosedive
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E-mail Xinhua, December 17, 2014
Russian authorities have taken currency measures to stop the national currency's free fall against the backdrop that the ruble plunged to new lows on Tuesday, with the euro once hitting 100 rubles and the U.S. dollar 80 rubles in Moscow trade.
Russian Prime Minister Dmitry Medvedev earlier convened an extraordinary meeting to discuss response measures in the current financial and economic situation in the country.
According to Economy Minister Alexei Ulyukayev, a list of measures were outlined at the meeting, including moves to increase foreign currency liquidity supply on the domestic market.
Current concern is mainly to ensure "greater balance between demand and supply on the domestic foreign currency market," Ulyukayev said, while the focus of refinance would be changed from the ruble to foreign exchange by increasing foreign exchange offers and decreasing foreign exchange demand via free ruble assets.
Although the Russian Central Bank had made several currency interventions, it was the first time the Russian government urged taking currency measures.
Earlier in the day, Central Bank chief Elvira Nabiullina said the bank was not going to forcefully restrict operations on the currency market despite the troubled situation, but would steadily target inflation and sustain overall financial stability.
A free-floating ruble and a high key interest rate are among these measures, as they render currency speculations more risky, she specified.
The bank on early Tuesday morning announced raising its key interest rate to 17 percent, a dramatic move after it raised the rate to 10.5 percent only days ago.
"I would like to emphasize once again that the hike in our key rates are oriented first of all on lowering inflation and inflationary expectations. This will indirectly influence the currency market, but this may not be immediate," according to Nabiullina.
She reiterated that the ruble is currently undervalued and that over time it will return to a more normal value.
Some experts believed that the Russian government made a right decision to raise the interest rate, as the foreign exchange market has undergone violent and irrational fluctuations for weeks, and a higher interest rate could help restore the stability of the foreign exchange market.
The market's abnormal conditions urgently need the central bank to take some special measures, analysts said.
Former Russian Finance Minister Alexei Kudrin also approved the move, saying on Twitter that the Russian government now should adopt measures to help win back the trust of investors.
Nevertheless, some believed the latest move had failed to quell market jitters.
"The markets saw the latest moves taken by the bank as not decisive as they should be in the given circumstances," Maxim Osadchy, head of analysis at Moscow-based Corporate Finance Bank told Xinhua.
The financial authorities still have tools to tame the out-of-control panic, said Osadchy, suggesting the key interest rate should be increased "not by percents but in times."
Although the ruble exchange market is complicated by a range of international and domestic factors, like oil price or Russia's commodities-reliant economy, some analysts believed that the central bank should first and foremost concentrate on limiting the liquidity of the ruble as soon as possible. Endit
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