Russian Ruble in the News again as Central Bank Cuts Rates by 2%

The final trading day of the month brings in another central bank surprise. The Russian ruble has been sent into

Bank of Russia LogoThe final trading day of the month brings in another central bank surprise. The Russian ruble has been sent into another tailspin by the Bank of Russia as it cut key interest rates by 2% in an unexpected move.

What has been the most volatile month on the foreign exchange markets since the dawn of the financial crisis in 2008, could finish on a worrying note for the capital markets. The Bank of Russia has just proven that it’s nowhere close to independent, by issuing a very controversial statement accompanying the decision.

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According to the Russian central bank, the decision was taken due to the ongoing “shift in the balance of risks of accelerated consumer price growth and cooling economy.” Granted, the central bank’s dramatic action on the 15th of December, 2014 played a role, but the judgement that an interest rate hike did its job in 6 weeks is rather puzzling.

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The Bank of Russia highlights that the primary factor for the increase in inflation has been the depreciating ruble, which is quite correct. However, the central bank steps a notch further saying that the “accelerated price adjustment to the ruble depreciation is time-limited.”

On Monday, Forex Magnates published a short analysis of the current Russian situation outlining a Standard & Poor’s downgrade and the case for extreme volatility in the Russian ruble. The scenario has just materialized in full force, possibly prompting action by some brokers with regards to Russian ruble trading and margin requirements in the coming days.

The Russian ruble is trading around session lows at 71.40, which is lower by 4% on the day. Throughout January the currency has depreciated more than 17% as of current rates.

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