Rouble climbs off record low, Russian stocks soar as central bank eyed
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[February 25, 2022] MOSCOW
(Reuters) -The rouble firmed on Friday after hitting all-time lows in
the previous session when Russia began invading Ukraine, while stock
indexes rose sharply after their biggest one-day fall on record.
No Russian assets were left unscathed in heavy selling on Thursday. The
fighting in Ukraine continued on Friday.
At 0722 GMT, the rouble gained 2.3% against the dollar to 83.30 after
hitting a record low of 89.60 in highly volatile trading on Thursday.
"We expect the dollar to stay within a range of 83-85 to the dollar,"
Promsvyazbank said in a note.
Against the euro, the rouble firmed 2.3% to trade at 93.49, having hit
an all-time low of 101.03 on the interbank market on Thursday.
The currency was supported by the first Russian central bank currency
interventions since 2014, when Russia annexed Crimea from Ukraine.
INFLATION
The market expects more action from the central bank, which has to
address inflationary risks. The weakening in the rouble after the
invasion of Ukraine is expected to dent living standards in Russia and
to stoke inflation that is already close to 9%.
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The central bank may now carry out an unplanned interest rate hike as it
did in late 2014, when it raised the key rate to 17% from 10.5% late at
night amid a plummeting rouble, analysts say.
"We think a prompt out-of-schedule 400bp or bigger hike by the CBR is
likely with the key rate exceeding 13%," Morgan Stanley said in a note.
Alor Brokerage said the central bank could hike the rate by 2-3
percentage points in the near future, aiming at keeping the rouble near
80 to the dollar and 90 to the euro.
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Russian Rouble coins are seen in this illustration taken, February
24, 2022. REUTERS/Dado Ruvic/Illustration
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The central bank, which targets inflation at 4%, had been expected to
consider raising rates at its next board meeting on March 18.
The market is also digesting new harsh Western sanctions against Russia.
The moves stopped short of disconnecting Russia from the SWIFT global
interbank payments system or targeting its oil and gas exports, and
Russia has spent the past seven years building up formidable financial
defences.
"However, the possibility (of disconnection from SWIFT)remains and
uncertainty hurts the market more than the worst sanctions – focus will
be on developments in Ukraine, the potential for negotiations, and any
further sanctions," BCS Brokerage said in a note.
But analysts said Russia's economy is unlikely to withstand the
onslaught of coordinated sanctions from the West in the long run.
Russian stock indexes pared heavy losses after Thursday's record one-day
fall.
The dollar-denominated RTS index soared 27.5% to 947.7. The rouble-based
MOEX Russian index gained 22.5% to 2,520.9 points, heading away from its
weakest level since early 2016 of 1,681.55 that it hit on Thursday.
(Reporting by Andrey Ostroukh; Editing by Kim Coghill and Gareth Jones)
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