Russia: economic update - October
Published 14 November 2014
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This article is no longer current. Please refer to Overseas Business Risk – Russia
Summary
Russian Central Bank moves to free floating Rouble exchange rate. New maximum intervention of $350mn per day. Russia has spent $30bn in the last month defending the currency. Rouble falls to new historic low on the news.
Detail
On, 5 November, Russia’s Central Bank announced that it would limit its daily foreign currency interventions to a maximum of $350mn. It reserved the right to make additional one off interventions “in case of financial stability threats”. Whilst the Central Bank has expressed its intention to retain a nine Rouble wide currency trading band, analysts consider that the Rouble is now, in effect, a free floating currency.
The Central Bank had previously intervened with $350mn every time the exchange rate moved five kopeks (0.05 Roubles) outside of the nine Rouble wide band against a Euro/Dollar currency basket. These interventions were designed to smooth out currency movements and provide a more stable currency environment, and had managed a progressive decline in the value of the Rouble against the currency basket over recent months.
The existing policy had however cost Russia $30bn in October alone. Rumours of this announcement had circulated last week, as the Central Bank had anyway intended to move to an entirely free floating currency by the beginning of 2015. This and the decision on 31 October to raise interest rates by 150 basis points to 9.5% are driven by a number of factors including rising inflation, a stagnating economy, and the impact of sanctions. But falling oil prices are by far the most significant driver.
During trading on 5 November the Rouble fell to touch a new historic low of 45 to the US Dollar then pulled back slightly to 44.8.
Disclaimer
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.
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