Image credit: Petar Milošević/Wikimedia Commons/Public domain
May 26, 2022
Russia slashes rates in effort to cool rouble’s rapid ascent
Source: The Financial Times
Journalists Tommy Stubbington, Nastassia Astrasheuskaya
Alongside an exodus of foreign companies from Russia, groups including Russia’s biggest carmaker Avtovaz have halted production because of a lack of imported components.
“What does rouble strength really mean? Certainly not that the economy is healthy,” Kurdyavko said. “Growth will be deep in negative territory. Inflation is double digits. Clearly pain is being felt. On the most basic level, businesses are closing down because they can’t import anything.”
In this environment, the Bank of Russia will have to tread carefully in seeking to tame the currency’s rise, according to the IIF’s Ribakova.
“Russia’s central bank is trying to loosen capital controls because it feels the rouble is too strong,” Ribakova said. “But the central bank is in a rough spot; if they continue loosening, they may open the floodgates of capital flows out of the country. In previous crises, $200bn left the country in a matter of months.”
“The bottom line is while the rouble is stable and Russia has a current account surplus in the short-term, the economic fallout from the invasion of Ukraine will undermine Russia’s economy in the long term.”
Read the full story and more from The Financial Times.