The scheduled vote on the second reading of the Russian forex regulation bill on the 23rd of April has not materialised as the government has undertaken some heavy criticising of the current document. According to Russian media reports the faith of the legislative project which is aiming to regulate the retail forex industry and other OTC market dealers has been returned for additional amendments.
The Economic Ministry has criticised the bill for lack of substance and claims that there is no regulatory subject in the text, while the Finance ministry has reiterated that it supports the current form, however added that some amendments are necessary. The Bank of Russia has also joined the debate stating that there are some duplicates of existing regulatory frameworks that need to be revised.
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Meanwhile the Russian Central Bank has hiked interest rates to 7.5% today to stem a renewed decline in the Russian currency sparked by comments of Russian foreign affairs minister Serguey Lavrov, that Ukraine will pay with blood for fighting against its own people and an S&P downgrade of Russian Government debt to just a level above junk status.
The renewed volatility in the Russian ruble is spreading to other emerging markets currencies with the Chinese Yuan hitting yet another 16 month low and other regional currencies following suit. An overreaction of the market to the comments and the the imminent downgrade, which comes in the aftermath of a revised outlook issued by S&P a couple of weeks ago remains a possibility, however with the currency trading close to all time lows we are likely to see yet another stream of FX outflows from the Russian economy.
FX volumes at the Moscow Exchange have been on a tear in recent months, and the escalating geopolitical issues coupled with higher interest rates for Russian businesses are likely to lead to a recession in the country. A period of slow growth has been dominating the commodity-dependent Eastern European economic heavyweight and the Russian rubble has been declining heavily since the end of last year.