Kremlin blames Central Bank’s loose policy as Russian Rouble slips for 5 days in a row
ALBAWABA – The Kremlin blamed loose monetary policy for the decline in the value of the nation's currency as the Russian Rouble slips amid an ongoing deficit, sliding below 101 against the United States (US) Dollar on Monday, after five consecutive days of decline, news agencies reported.
Overall, the rouble lost nearly 30 percent of its value against the US dollar in the year to date, according to Reuters.
Meanwhile, President Vladimir Putin’s economic advisor Maxim Oreshkin blamed the central bank and its loose monetary policy for the rouble hitting the lowest point in 17 months, at 101.04 per US dollar.
Attempts by Russia’s central bank to arrest the slump by halting its foreign-currency purchases on the domestic market for the rest of 2023 were unsuccessful, according to Bloomberg.
Moscow has run a budget deficit for eight months in a row as it tries to shore up an economy that is battered by shrinking export revenues and isolation from international financial markets.
Sanctions, war and loose monetary policy to blame as the Russian Rouble slips
Western sanctions have exacerbated the situation further, Bloomberg reported. Whereas Bank of Russia Governor Elvira Nabiullina repeatedly cited deterioration in trade as the main reason for the Russian Rouble slipping.
Yet, Oreshkin said in an op-ed for the TASS news agency that the Kremlin is looking for a strong rouble and expects the situation to normalise shortly, Reuters reported.
An intervention would require the central bank to either buy the rouble off the market or issue an immediate interest rate hike ahead of its next scheduled policy meeting on September 15.
"The main source of rouble weakening and accelerating inflation is soft monetary policy," Oreshkin wrote.
The Bank of Russia hiked interest rates by 100 basis points in July to 8.5 percent, but seems to be poised for a series of hikes to offset the decline before the Russian Rouble slips further.
"The central bank has all the tools to normalise the situation in the near future and ensure that lending rates are reduced to sustainable levels.”
“A weak rouble complicates the economy's structural transformation and negatively affects the population's real incomes," he added.
"It is in the interests of the Russian economy to have a strong rouble," Putin’s advisor underlined.
On the other hand, the central bank blamed the rouble's sharp slide this year on Russia's shrinking current account surplus, down 85 percent year-on-year in January-July, according to Reuters.
As the Russian Rouble slips, it poses no financial stability risks: Central Bank
Moreover, the bank said Monday that it saw no financial stability risks from the rouble's weakening and signalled another rate hike is possible soon.
Before war broke out between Russia and Ukraine, the rouble traded at around 75 to the dollar. However, the Russian Rouble slipped to a record low of 120 against the US dollar back in March last year, Reuters reported.
The rouble then recovered to a seven-year high within months, driven by capital controls and surging export revenues.
Since then, Russian oil and gas exporter revenues declined to $6.9 billion in July from $16.8 billion for the same period last year, as per the latest central bank data.
An easing of restrictions on moving money abroad has also led to accelerated capital flight as Russians race to shift funds into foreign accounts, Bloomberg reported.
In the meantime, the Organization of Petroleum Exporting Countries and its allies (OPEC+) has been cutting oil output and supply for months to bolster oil prices.
Saudi Arabia and Russia both cut oil supplies, the prior cut output and the latter cut export, by nearly 2 million barrels per day, with the Saudi oil cut running through September.
OPEC+’s top producer, Saudi, repeatedly said it would do whatever is necessary to boost oil prices.
Despite the oil cuts, oil prices have fallen again on Monday over concerns regarding sluggish China recovery and a valuating dollar, which has been gaining six days to Monday.
Still, the US energy administration confirmed Friday that the continued oil cuts will exhaust reserves by the end of the year, as the running global oil deficit hits nearly 2 million barrels per day.
International energy institutions expect oil prices to breach the $80 barrier by the end of 2023.
