USD/RUB surges as central bank hikes interest rate to 15%

The Russian rouble (USD/RUB) saw a strong surge, reaching its highest point in over six weeks against the US dollar on Friday. The spike followed an unexpected move by the Bank of Russia, which raised its key interest rate to 15%, surpassing the predicted 100-basis-point increase. The central bank’s decision, aimed at countering the weakening rouble and persistent inflation, was met with support from heightened foreign currency sales by exporters.

At 12:30 GMT, the rouble rallied strongly, marking a 1.4% gain against the dollar, reaching 92.66, a level not seen since September 12. Similarly, it rose 1.8% against the euro, trading at 97.81, and strengthened by 1.2% against the yuan, reaching 12.63.

Governor Elvira Nabiullina is set to elaborate on the monetary policy and related matters during a scheduled news conference at 13:00 GMT. Sovcombank’s Chief Analyst, Mikhail Vasilyev, anticipated a positive impact on the rouble in the near future, stating that the rate hike would curtail consumer and investment demand, particularly for imports, while enhancing the attractiveness of rouble savings.

“We expect that by the end of the year, the rouble exchange rate will hover between 94-98 per dollar, 99-104 per euro, and 12.8-13.4 per yuan,” Vasilyev predicted.

Despite a slight decrease in households’ inflationary expectations in October to 11.2%, these figures remained significantly above the 4% target, according to CentroCreditBank economist Yevgeny Suvorov. He suggested that the central bank might consider raising rates further to 16% during its upcoming meeting on December 15, emphasizing that inflation expectations still lingered at historically elevated levels.

The recent support for the rouble can be attributed to month-end tax payments due on October 30. During this period, exporters typically convert foreign exchange revenue to meet domestic liabilities, bolstering the national currency. Additionally, President Vladimir Putin’s decree, which mandates 43 groups of exporters to repatriate 80% of foreign exchange revenue and sell 90% of that sum, has further bolstered the rouble. Since the decree’s announcement, the rouble has strengthened from beyond 100 to the dollar.