Russia's central bank has unveiled a significant initiative aimed at bolstering the beleaguered ruble, which has seen a marked decline over the course of 18 months, primarily due to the imposition of Western sanctions following Russia's military engagement in Ukraine.
In an official statement released on Wednesday, the Bank of Russia disclosed its intention to substantially ramp up support for the ruble. Commencing from September 14 and extending through September 22, the central bank will engage in daily foreign currency sales amounting to a staggering 21.4 billion rubles ($218.5 million) on the open market, representing a tenfold increase from its previous daily volume.
This substantial increase in intervention is closely linked to an impending payment of government-issued foreign currency bonds, commonly referred to as eurobonds. The Bank of Russia justified this move by explaining that the Finance Ministry would be disbursing payments to eurobond holders in rubles, adhering to the established protocol. Consequently, a portion of these bondholders may generate additional demand for foreign currency, necessitating the central bank's proactive stance.
In response to the western sanctions, the Russian government had previously mandated that these bonds be paid out in rubles rather than the foreign currency they were originally designated in, a measure that has significant implications for the foreign exchange market.
The central bank's decision to amplify its foreign currency sales is envisioned as a strategic response to any potential surge in demand for foreign currency, thereby mitigating market volatility during the specified timeframe.
Despite concerted efforts by the Russian authorities to stabilize the ruble following its initial depreciation concurrent with the commencement of the military campaign in Ukraine, the currency has exhibited a persistent downward trend over the past year. August marked a pronounced decline, with the ruble plummeting below the 100-ruble-to-the-dollar threshold for the first time since the campaign's outset.
To counteract the ruble's depreciation and curb inflationary pressures, the Bank of Russia executed a substantial hike in its key interest rate, elevating it from 8.5% to 12%. This decisive move momentarily bolstered the ruble, driving its value to just under 94 rubles per dollar. Regrettably, the ruble's gains have gradually eroded, with its current exchange rate resting at 98 rubles to the dollar.
Intriguingly, a recent dispute has emerged between the government and the Bank of Russia, further complicating the economic landscape. Elvira Nabiullina, the central bank's governor, advocates against heightened government intervention in the economy, fearing that it could exacerbate economic fragility. In contrast, Finance Minister Anton Siluanov champions greater control over capital movements as a potential solution to the ruble's woes.
The ruble's fortunes remain a focal point of concern within Russia's economic landscape, with the central bank's proactive measures indicative of a commitment to safeguarding the currency's stability amid ongoing challenges.
