Bank of Russia Holds Fire on Interventions as Ruble Plummetsby and
Ruble is close to `fundamental levels,' central bank head says
Finance minister says Bank of Russia `executing smart policy'
The Russian central bank won’t intervene in the currency market unless the ruble’s swings threaten financial stability, Governor Elvira Nabiullina said after the currency slumped to a record.
“We’ll intervene only if we see risks to financial stability,” Nabiullina said in an interview Wednesday in Moscow on the sidelines of a small-business forum. “There aren’t such risks now.”
The ruble is close to its “fundamental levels,” she said. Oil prices are currently very volatile and will remain one of the main factors affecting the exchange rate, according to Nabiullina.
Russia relies on oil and natural gas for almost half its budget revenue and oil trading at a 12-year low has dragged the ruble down 10 percent versus the dollar in 2016, the most among developing nations. The central bank, which responded to the currency crisis a year ago with an emergency 6.5 percentage-point interest-rate increase in the middle of the night, hasn’t sold foreign exchange since allowing the ruble to float freely in December 2014.
The Bank of Russia “is executing a smart policy,” Finance Minister Anton Siluanov told reporters at the same event. The exchange rate reflects the current situation in the energy market, and crude prices may continue to slide after the lifting of sanctions on Iran, he said. Some producers may keep up output below cost on expectation of a quick rebound in prices, he said.
The Russian currency weakened as much as 4.1 percent to 81.9410 against the dollar, surpassing the previous trough it touched at the height of the nation’s financial crisis in December 2014. Oil extended its decline from the lowest close in more than 12 years on Wednesday as a global supply glut worsened.
The Russian currency would need to weaken about 9 percent to 90 against the dollar for the central bank to step in, according to a survey of economists polled by Bloomberg. Currency sales in support of the ruble were the likeliest course of response for the Bank of Russia, followed by verbal interventions and an emergency interest-rate increase, the economists said.
Bank of Russia First Deputy Governor Ksenia Yudaeva said last week that the regulator doesn’t “completely” rule out a rate increase as it looks to meet its 4 percent inflation target by the end of next year. Annual price growth decelerated to 12.9 percent in December after reaching a 13-year high of 16.9 percent in March. The central bank has held its benchmark at 11 percent since July after five rate cuts last year.
President Vladimir Putin warned on Wednesday against a rate level that risks undermining the economy.
“There can’t be low rates under certain conditions on markets, in the economy,” Putin told the forum. “We should be very careful and not ruin the macroeconomic foundation on which our economy stands rather steadily, despite all external shocks and difficulties.”