Philip Uglow, chief economist at Deutsche Boerse-owned research company MNI Indicators, has said that last week’s key rate hike to 17% from 10.5% by the Russian central bank showed “how slow” the regulator had been to react to the slide of the ruble.
In comments emailed to EmergingMarkets.me, Uglow warned of the possibility of a “loss of confidence” in the ruble and in the Russian authorities’ ability to control the situation.
Here is what Uglow said in his comments:
“While the emergency rate hike in the early Moscow hours was surprising, it is the sort of drastic action the Central Bank of Russia needs to take if it is serious about addressing the slide in the rouble. The size of the hike, though, also shows just how serious the situation is in Russia and how slow the central bank has been to react to the significant weakening in the currency. The situation now has gone beyond a discussion of fundamentals, which are clearly very weak, to a dangerous loss of confidence in the currency and the ability of the Russian authorities to control the situation. A change in the fortunes of the price of oil would help matters, although this doesn’t appear forthcoming. In its absence we’re unlikely to see pressure on the rouble subside, with the authorities likely to have to step in again at some point to try and put a floor under the currency. Acting in isolation, however, the central bank will have a tough time convincing speculators and investors that it has the credibility and firepower to stop the rot. Capital controls are a last resort, and while for now the authorities appear to have ruled them out, in such a fast moving situation nothing is out of the question.”
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