Russia admits action to buoy rouble

Russia 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 $4.53bn (£2.9bn).

It has spent more than $70bn supporting the rouble since the start of the year.

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.

Rate rise?

Russia has been forced to defend its currency as Western sanctions, in response to its role in eastern Ukraine, and falling oil prices begin to bite.

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] simply is not doing enough to convince the market that it is serious, using a pea-shooter in terms of current piecemeal intervention,” said Standard Bank analyst Tim Ash in a note. “It will need to hike rates significantly to defend the rouble, or let the rouble further weaken.”

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.

Source: http://www.bbc.com/news/business-30391881

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