Russian rouble edges up as focus turns to expected rate increase

The Russian rouble edged higher against the dollar and euro on Thursday, supported by domestic factors but still hamstrung by geopolitical concerns, with market players focused on the central bank, which is expected to raise rates on Friday.

At 0715 GMT, the rouble was 0.1% stronger against the dollar at 91.28 and had gained 0.2% to trade at 102.41 versus the euro after clipping a near 16-month low of 102.8175 in early trade.

It had shed 0.4% against the yuan to 12.69.

The Russian currency has been gradually weakening all year as exports fall and imports recover, but pressure intensified after an abortive armed mutiny by the Wagner mercenary group in late June.

Attacks on Russian infrastructure have also dampened risk appetite.

Analysts polled by Reuters on Monday expect the Bank of Russia to raise rates by 50 basis points to 8%, with the rouble’s sharp slide in recent weeks adding to already intensifying inflation pressure from labour shortages and strong consumer demand.

Inflation data this week, however, showing a jump in households’ inflationary expectations for July and an acceleration in Russia’s weekly consumer prices has led some to revise forecasts, anticipating an even tighter rate step.

“The country is on the brink of a major inflationary catastrophe,” said CentroCreditBank Economist Yevgeny Suvorov. “But it can still be prevented.”

Higher than expected inflation data, the rouble’s collapse and a surge in consumer spending require a more decisive step than the 50-basis-point increase most have forecast, he said.

Russian rouble slides to near 16-month low vs euro

“It is not excluded that this will be up 100 basis points, and maybe even up 150.”

Brent crude oil, a global benchmark for Russia’s main export, was up 0.1% at $79.56 a barrel.

Higher oil prices, an interest rate hike, easing domestic demand for foreign currency and upcoming month-end tax payments by exporters should buttress the rouble.

“The rouble will likely remain near 91 to the dollar on Thursday, but will appreciate on Friday and next week,” said Sberbank analysts in a note.

Russian stock indexes were lower.

The dollar-denominated RTS index was down 0.3% to 1,012.2 points.

The rouble-based MOEX Russian index was 0.4% lower at 2,932.8 points.