Russia to Intervene In Ruble Appreciation
March 17, 2010 at 16:53 UTC || By Forex Playmaker
Bloomberg is reporting that Russia will actively intervene to contain the ruble’s appreciation:
Russia, the biggest economy still cutting interest rates, will probably deploy a three-pronged strategy to steer an uneven recovery as the ruble soars, inflation hovers at a 12-year low and bank liquidity swells.
The central bank has signaled it may cut the benchmark refinancing rate from 8.5 percent this month and may offset the move by requiring banks to increase reserves, said economists at JPMorgan Chase and Co. and Nomura Holdings Inc. Bank Rossii, which says it may start raising rates in the second half, must also do more to stem ruble volatility, they said.
“Tensions in Russia’s monetary policy derive from pressure on the ruble, which has seen a very serious appreciation and has raised concerns with policy makers worried about the competitiveness of Russian products,” said Ivan Tchakarov, an economist at Nomura Holdings Inc. in London.
For an export-driven economy, few things are more detrimental to its health than a soaring and seemingly uncontainable currency valuation. The ruble is presenting a major obstacle for Russian officials, who must carefully consider the unintended consequences of policy decisions aimed at depreciating the nation’s currency. FDI (foreign direct investment), for example, is pivotal to Russia’s economic health, yet lowering interest rates does little to encourage future investments.
Interestingly, Goldman Sachs is advising its clients to buy BRIC (Brazil, Russia, India, China) currencies in spite of the efforts that Russia will make to devalue the ruble. Perhaps Goldman recognizes that similar efforts undertaken recently have failed to contain similarly appreciating currencies. Most notably, the efforts of the Swiss and the Japanese to devalue their respective currencies (CHF, JPY) have been colossal failures.
Full Article: Russia Wields Three-Pronged Policy Fix for Recovery
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