Kremlin blames loose monetary policy as rouble slides past 101 vs dollar
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[August 14, 2023] MOSCOW
(Reuters) -President Vladimir Putin's economic adviser rebuked the
central bank on Monday as the rouble slid past 101 per U.S. dollar,
blaming its 30% year-to-date slump on loose monetary policy and
revealing growing discord among Russia's monetary authorities.
The rouble, which has lost around a quarter of its value against the
dollar since Putin sent troops into Ukraine in February 2022, hit 101.04
per U.S. dollar, its weakest point in almost 17 months.
As the rouble tumbled, Putin's economic adviser Maxim Oreshkin said in
an op-ed for the TASS news agency that the Kremlin wanted a strong
rouble and expected a normalisation shortly, an intervention that could
spur the central bank into action ahead of its next scheduled interest
rate decision on Sept. 15.
"The main source of rouble weakening and accelerating inflation is soft
monetary policy," Oreshkin wrote. "The central bank has all the tools to
normalise the situation in the near future and ensure that lending rates
are reduced to sustainable levels.
"A weak rouble complicates the economy's structural transformation and
negatively affects the population's real incomes," he said. "It is in
the interests of the Russian economy to have a strong rouble."
The Bank of Russia, which hiked rates by 100 basis points in July to
8.5%, has blamed the rouble's sharp slide this year on Russia's
shrinking current account surplus - down 85% year-on-year in
January-July.
On Monday, the bank said it saw no financial stability risks from the
rouble's weakening and gave another hawkish signal that a rate hike is
possible soon.
'DAMNING INDICTMENT'
The rouble has chartered a turbulent course since Russia invaded
Ukraine, slumping to a record low of 120 against the dollar in March
last year before recovering to a more than seven-year high a few months
later, supported by capital controls and surging export revenues.
Before the war, the rouble traded at around 75 to the dollar.
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Sheets of the newly designed Russian
100-rouble banknotes are seen at the Goznak printing factory in
Moscow, Russia July 6, 2022. Moscow News Agency/Handout via REUTERS
"The weaker rouble is a damning indictment of Russia’s war on
Ukraine," Timothy Ash, a London-based senior sovereign strategist at
BlueBay Asset Management, said in an email.
"It is being driven not only by lower energy receipts due to the
loss of the bulk of the European gas business but also by the
success of the G7 oil price cap, the much higher cost of imports due
to sanctions and then continued capital flight."
To staunch the rouble's slide, Russia could reintroduce tougher
capital controls. Another option would be to raise interest rates,
something the central bank is already minded to do given high
inflation, but that limits economic growth potential and means
higher borrowing rates for the government as it seeks to finance
military operations in Ukraine.
Last week, Russia effectively abandoned its budget rule, with the
central bank halting the finance ministry's FX purchases to try and
reduce volatility. Analysts widely agreed that those measures alone
were too minimal in scope to significantly support the currency.
"The central bank is not fully in control," independent Moscow-based
economist Ian Melkumov told Reuters, although it has aggressive
tools that it is currently reluctant to use.
He said the bank could hike rates drastically, as it did to 20%
shortly after Russia began what it calls a "special military
operation" in Ukraine. A move to even 15% would stop the rouble's
decline, he said.
"(But) the central bank doesn't want to kill the economy and
businesses in the same way it had to last year."
(Writing by Alexander MarrowEditing by Gareth Jones)
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