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Russia Admits Action to Buoy Rouble

Russia Admits Action to Buoy RoubleRussia Admits Action to Buoy Rouble

Russia's central bank has admitted it intervened to support the rouble in foreign currency markets last week spending a total of $4.53 billion. It has spent more than $70bn supporting the rouble since the start of the year, Reuters said in a report.

Its admission came as the World Bank warned the Russian economy would shrink by at least 0.7% in 2015 if oil prices do not recover. Both the currency and Russian share indexes fell on Tuesday as global oil prices fell to a new five year low.

Russia has been forced to defend its currency as Western sanctions, in response to its role in eastern Ukraine, and falling oil prices. But analysts suggested it may take a significant hike in interest rates to stop the currency from further falls as well as surging inflation, which stood at 9.1% in November.

"The CBR [Central Bank of Russia] will need to hike rates significantly to defend the rouble, or let the rouble further weaken," said Standard Bank analyst Tim Ash in a note.

The bank has already raised interest rates by 1.5% in October to 9.5%. It is expected to raise interest rates further later this week.

On Tuesday the rouble fell by 0.9% against the US dollar to 54.25 roubles and lost 1.1% to 67.00 against the euro.

In November, CBR announced it was going ahead with a free float of the rouble by abolishing its unofficial link to the euro and the US dollar. It also announced it was ending automatic interventions to support the currency, instead propping it up only when it was deemed necessary.

The bank had previously supported the rouble when the exchange rate against the euro and dollar exceeded certain limits.

At the time, the CBR's chairwoman Elvira Nabiullina, said the bank would instead intervene in the currency market "at whichever moment and amount needed to decrease the speculative demand."

The bank has said it hopes to achieve a full floating exchange rate in 2015.

 

Financialtribune.com