Rouble stabilises after relaxed Putin endorses central bank response

THE Russian rouble has steadied against the US dollar after President Putin cautiously endorsed the central bank’s policy.

THE Russian rouble has steadied against the US dollar after President Vladimir Putin cautiously endorsed the central bank’s policy and gave no gruesome forecasts at his end-of-year news conference amid a growing economic crisis.

Following a volatile start of the day, with the rouble staging a short-lived recovery toward the level of 58 against the US dollar on the Moscow exchange, the battered currency eased back and steadied around 61 as Mr Putin tried to reassure his audience that Russian authorities are doing the right thing to fight the country’s ­financial crisis.

The government and central bank’s actions are “on the whole appropriate”, he said, though “some things could have been done more urgently”, apparently referring to this week’s emergency rise in interest rates. Russia’s central bank, in a bid to stem the rouble’s sharp decline, raised its key interest rate to 17 per cent, its highest since 2003.

Mr Putin’s comments come a day after Russian authorities announced measures to ease banking regulations and encourage exporters to sell foreign currency. The measures boosted the rouble Wednesday to around 62.5 against the US dollar, and Mr Putin said, in an address that lasted more than three hours, that he hoped the recovery would continue.

“Everybody was certainly interested in how the President would appraise the central bank’s actions. The market received some support after the President gave a positive assessment of the central bank’s team. But the market is still worried about geopolitical risks,” said Natalia Orlova, chief economist at Alfa Bank in Moscow.

Mr Putin adopted a defiant tone when speaking about Russia’s involvement in the Ukrainian crisis as the European Union toughened its trade, investment and business sanctions on Cri­mea-based companies, introducing a range of new measures from a ban on EU cruise ships visiting local ports to a ban on sales of energy and telecommunications tech­nology.

But the impact of new sanctions was somewhat outweighed by a recovery in oil prices yesterday, with Brent crude rising 2.5 per cent to $US62.60 a barrel. So far this year, the rouble has lost almost half its value against the US dollar because of Western sanctions and a rapid drop in oil prices to around $US60 from levels of more than $US100 a barrel before mid-­September.

With an average oil price of $US60 a barrel, Russia’s economy is expected to contract next year for the first time since 2009, shrinking by 4.5-4.7 per cent, according to the central bank’s latest forecast.

The economy could be further jeopardised by the monetary tightening, aimed at taming consumer inflation, which has almost reached double-digit readings.

“The inflationary impact of recent falls (in the rouble rate) will erode real incomes, further damaging private consumption and domestic demand. If rates have to be kept high or increased to support the currency at a lower oil price, the impact could be greater still,” Fitch Ratings said.

The MosPrime overnight rate, which reflects the cost of borrowing roubles on the interbank market, soared to 27.3 per cent on Thursday from 11.83 per cent before the central bank’s massive hike of the key interest rate.

This week the rouble, which hit a record low of 80.10 against the US dollar on Tuesday, has been exposed to significant volatility as investors question the ability of Russian authorities to stem the worst financial crisis since the late 1990s.

Some Russians have rushed to convert their national currency into US dollars and euros in recent days, forming lines at exchange booths and buying up electronics and other durable goods.

Faced with rising demand for imported goods and not being able to pay for new imports due to record high volatility in the exchange rate, many companies have suspended operations in Russia, waiting for the markets to calm down.

Ikea said yesterday that it was suspending selling kitchen furniture and household appliances. Apple stopped selling its products online earlier this week, while several car traders are also putting sales on hold due to fluctuations in the rouble rate.

Many other companies are raising prices on a daily basis. MVideo, a household appliances and electronics retailer, said on Thursday that it had to raise prices for the most popular goods by as much as 15 per cent in the face of strong consumer demand.