Rouble jumps after months of steep drop

Chris Papadopoullos
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THE RUSSIAN rouble strengthened against the dollar yesterday despite the Central Bank of Russia (CBR) announcing the abandonment of its exchange rate controls.

A press release from the CBR said foreign exchange intervention might still be considered in the case of renewed “financial stability threats”, which may have reassured foreign exchange markets.

Markets may also have been calmed by Russian President Vladimir Putin.

“We are currently seeing speculative jumps in the exchange rate, but I think that this should stop soon,” said President Putin at an Asia Pacific Economic Cooperation summit held in China.

“Our fundamentals in terms of currency reserves and balance of payments remain at good levels. That allows us to control the situation without taking any extraordinary emergency steps.”

The rouble has plummeted by over 20 per cent against the dollar since the beginning of July.

Yesterday. it rocketed by four per cent against the dollar before declining slightly later in the day.

Sanctions caused investors to take capital out of Russia, which led the currency to weaken as they must sell their assets for roubles and then convert these into a foreign currency.

Falling oil prices have also appeared to impact the rouble’s value, with the Russian economy being especially reliant on fuel exports. Further declines in the rouble’s value could spell trouble for Russia’s banks.

Russia’s banks have higher levels of debts denominated in dollars than they do assets denominated in dollars.

A weaker rouble makes their debts worse and their assets better. But with dollar debts outweighing dollar assets, Russian banks are set to lose if the rouble weakens.

According to consultancy Capital Economics, should the rouble stay around 45 per dollar, this could translate into a 1 trillion rouble hit to banks’ balance sheet – around 1.5 per cent of total bank assets and 1.25 per cent of GDP.