The Russian currency is all over the newswires this morning (again), losing substantial value in early trading on the Moscow Exchange. It dropped close to 7.5% against the US dollar this morning to later stabilize. Currently, it’s trading “only” lower by 3.5%, around 51.80 rubles per US dollar.
The events from today have not been the catalyst for the latest political blame game which unfolded in Russia. The filing with the prosecutor’s office came before the market opened in light of the record Russian ruble depreciation last week.
Politicians have been rallying to reassure the Russian public about the stability of the Russian currency ever since the invasion of Crimea to no avail.
However, after the first batch of the rapid declines in value against major currencies in the beginning of the year, the Russian ruble has lost close to 60% of its value against the US dollar.
With the nosedive of the currency, the political establishment has started to seek how to shift responsibility away from the government. Several representatives in the Russian parliament have filed a complaint with the chief prosecutor’s office asking the authority to check on the inaction of the Bank of Russia during the recent collapse in the value of the Russian ruble.
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The members of parliament (MPs) have expressed their worries about a Russian ruble float which the central bank has been advocating going forward. Apparently, the Russian politicians prefer to shift the full blame for the ruble’s collapse on the Bank of Russia, and to spend the country’s vast foreign exchange reserves artificially inflating the value of the ruble instead of conceding defeat of the administration’s policies.
According to current legislation, the Bank of Russia has to secure the stability of the Russian ruble irrespective of other government bodies’ decisions. However, the behavior of the central bank has been under heavy influence by the political bodies as it still hasn’t raised interest rates high enough to defend the currency.
Unless Russian MPs want to waste the country’s foreign exchange reserves to defend the ailing Russian ruble, they might want to come up with a different set of measures to stabilize the economy.
As long as oil prices remain under heavy pressure, there is no reason to believe that the currency will be relieved from further selling pressure. However, more aggressive central bank action on interest rates cannot be ruled out before its meeting on December 11th.
The recent rise of interest rates to 9.5% has proven useless in defending the Russian ruble, as the geopolitical position of the country makes the job of the Bank of Russia incredibly hard in light of the Western sanctions imposed on the country.