In December, Russian Federation hiked interest rates to 17 percent in a bid to staunch a decline in the currency which lost nearly half of its value past year.
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The ruble has weakened past 60 against the dollar for the first time since March, tracking the price of oil and raising the likelihood that Russia’s central bank will hold off on cutting interest rates this week, Bloomberg reports.
Analysts had warned that the renewed ruble weakness in recent weeks, mostly driven by a slump in oil prices, is scuttling hopes for further sweeping cuts to the central bank’s lending rates to revive the country’s economy this year. The central bank, which cited concern over consumer prices at its last rate meeting in June, this week stopped daily purchases of foreign exchange to avoid exacerbating the currency’s slump.
“The balance of risks shifts towards the considerable economic cooling despite a slight increase in inflation risks”, the bank said.
The central bank said in a statement that it expects inflation to drop below 7pc by next July and reach a target of 4pc in 2017.
The ruble’s 19 percent loss against the dollar has been the world’s worst performance since May 13, when the regulator started buying foreign currency to replenish reserves.
That’s threatening to fuel inflation by pushing the cost of imported goods higher.
Before the Central Bank announcement, the ruble gained slightly against the dollar and the euro in the opening trade session, as the oil market’s signals of stabilization also contributed to the uptrend.
Still, analysts at Sberbank CIB said the decision to halt foreign currency purchases “risks confusing the market as to whether the central bank has indicated USD/RUB 60.0 as the upper band of its comfort zone”.
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The Russian ruble versus the US dollar over the last month. “With oil prices having gone south again, Russian Federation no longer looks as attractive”, said Zsolt Papp, a portfolio manager at J.P. Morgan Asset Management, which oversees $1.8 trillion in assets. It has said previously that GDP could fall by about 3% this year.
