Rouble sinks back to 100 versus dollar in new headache for Russia

The rouble depreciated near 100 per dollar again, briefly crossing an important psychological mark for Russian consumers and the government after past efforts by policymakers failed to arrest the currency’s decline.

Russia’s currency weakened as much as 0.5% to 100.255 against the greenback, before trading at 99.94 as of 7:22 a.m. in Moscow on Tuesday. The drop returned it to a threshold that triggered an emergency interest-rate hike in August and prompted fierce discussion about possible capital control measures to bolster the rouble.

Disputes between the Kremlin and the central bank over the best way to strengthen the rouble have spilled into the open.

Bank of Russia Governor Elvira Nabiullina has warned against the use of administrative measures to support the exchange rate, opting instead to rely on monetary policy. The central bank raised its key rate to 12% from 8.5% at an emergency meeting in August after the rouble last broke through 100, increasing it by a further percentage point to 13% last month.

August’s rate hike was the steepest since the immediate aftermath of Russia’s February 2022 invasion of Ukraine. While it’s had limited impact so far, the rouble would have been much weaker without the increase, Nabiullina said at the Moscow Financial Forum last week.

The central bank also announced in August that it would refrain from foreign-currency purchases for the rest of this year.

But the rouble has continued to decline as demand for hard currency in Russia increases amid a recovery in imports at a time when the economy is under international sanctions over the war. Russia’s major exporters, the main providers of foreign currency, have experienced significant declines in export revenues at the same time.

So far, the government has limited its measures aimed at easing selling pressure on the rouble to recommendations for exporters to surrender more foreign currency proceeds, without imposing any obligations.

The Finance Ministry advocated for stricter capital controls but retreated in the face of opposition from the central bank. Economy Minister Maxim Reshetnikov also proposed to split the foreign exchange market following the example of China, which has onshore and offshore rates for its national currency, an idea strongly criticised by Nabiullina.

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