Russia’s central bank (CBR) hiked its base rate by a further 100 bps last Friday. The USD/RUB ‘fix’ declined visibly after the decision, but this move fully faded before the end of the day. Economists at Commerzbank analyze the pair’s outlook.
Not much new information
There was not much new information from CBR’s statements – markets are broadly familiar with CBR’s tendency to hike rates when faced with rising inflation risk.
Rate hikes cannot really address current Rouble weakness against the Dollar, because this exchange rate does not really exist in the conventional sense, nor can higher interest rates attract capital to Russia (against a backdrop of sanctions) that it might have under normal circumstances.
Lastly, CBR has argued against capital control measures, calling them ineffective. CBR holds that RUB weakness can rather be explained by the deterioration of the trade balance. All this is consistent with our own views too, except we cannot see rate hikes being able to help much with (this current version of) Rouble depreciation either.