Russian Ruble Loses Momentum Ahead of CBR Interest Rate Cut

The Russian ruble slumped against the dollar in a volatile session on Thursday, with the USD/RUB tapping the 58.00 top. This comes ahead of the central bank of Russia’s interest rate decision on Friday. Forecasts expect the bank to bring its rates down by 50 basis points (bps) to 9%.

As of the North American session, the ruble is down by 5.19% as the price holds at the 57.00 level while dropping to the 58.61 mark against the euro.

Over the past few months, the single currency has enjoyed massive price boosts thanks to strict currency restrictions and declining imports, despite aggressive western sanctions mounted against Moscow. However, while a stronger currency comes with its perks, it also has its downsides.

Russian Policymakers Race to Weaken Ruble Amid Worsening Deflation

The surging RUB has triggered a bout of deflation in the Russian economy and worries among policymakers. In an attempt to remedy the problem, policymakers have moved to weaken the currency by easing some currency controls and cutting interest rates. Weekly inflation figures released yesterday highlighted another bout of falling prices, with annual inflation in Russia running at 15.4%.

While on the high side, the inflation figures are significantly lower than the worst-case predictions of 30% and higher, giving the Bank of Russia ample room to reverse its emergency 20% hike a few days after Moscow invaded Ukraine in late February.

Meanwhile, analysts have fingered thin summer-time trading as a reason for the heightened volatility recorded in Thursday’s session. Also, the Russian stock market mirrored the ruble falling significantly on Thursday.

The dollar-denominated RTS slumped by nearly 6% to the 11015.11 low this morning. Also, the ruble-based MOEX fell by over 1% in the Asian session on Thursday before reversing to neutral levels.