Russia: the rouble rises

Financial Times ^ | March 2, 2011 | Stefan Wags

[cunning_fish]

The Russian central bank has put into effect its latest moves in the fight against inflation with some style.

After raising interest rates on Monday for the first time since 2008, the authorities late on Tuesday widened the trading band for the rouble – and were happy to see the currency rise sharply on Wednesday, by a full 1 per cent against a US dollar/euro basket. As well as gaining some ground in the anti-inflation front, the central bank can claim another modest advance towards its aim of liberalising the rouble. Governor Sergei Ignatiev should be pleased with this week’s work.

Of course, the main driver for the strong rouble is the rising oil price, fuelled by the turmoil in the Middle East.

But it’s an ill wind…and Russian central bank has taken the opportunity to widen the trading band of the rouble against its dollar/euro basket by 0.5 roubles to a range of 32.45-37.45.

The rouble rose 1 per cent to a 9-month peak of 33.31 against the basket. But it still some 20 per cent off its 2008 peaks – so there is plenty of headroom in the market.

The bank’s first deputy chairman Alexei Ulyukayev said the band widening should help battle Russia’s surging inflation while increasing risks for speculators, and added that short-term risks point to further currency appreciation.

JP Morgan said in a note: “A wider, stronger corridor, rouble-bullish policymaker rhetoric and high oil prices make continued rouble appreciation possible.”

In the past, the energy lobby has blocked rouble appreciation because it cut the value of its dollar-denominated earnings.

But with ordinary Russians worried about rising prices and a presidential election in the pipeline, the priority for government officials is to curb inflation, which was running at an annual rate of 9.7 per cent last

[Niuhuru]

The Russian government is making responsible choices and not supporting a massive underclass.