Economist Drozdov recognized the increase in the key rate of the Central Bank as an insufficient measure

“You can “call on the carpet” and at least threaten with a pen, but this does not happen”

At an unscheduled meeting on Tuesday, the Central Bank raised its key interest rate by 350 basis points at once, to 12% per annum. This frankly force majeure step was expected for at least two reasons. Firstly, on the eve of the dollar exchange rate exceeded the “psychologically important” mark of 101 rubles, the euro – 111. Secondly, Maxim Oreshkin, presidential aide for economic issues, actually placed the responsibility for the situation on the management of the Bank of Russia.

A strong national currency is in the interests of the economy, and it is the Central Bank that “has all the necessary tools to normalize the situation in the near future,” Oreshkin wrote in a column for TASS. Elvira Nabiullina’s department had to assemble the Board of Directors in a fire order, and a press release about the decision made at the key rate appeared on August 15 at 10.30 Moscow time (usually the regulator reports on the decisions made at 13:30). As a reminder, the event is scheduled to take place on September 15th.

The effect followed immediately: soon after the start of morning trading on the Moscow Exchange, the ruble fully won back the losses: the dollar traded at 95.2, the euro at 104.1 (although after a couple of hours the figures corrected to 97.9 and 109, respectively). The previous July increase in the rate from 7.5% to 8.5% per annum did not stop or even slow down the trend towards a steady weakening of the Russian currency. Will the current measure work in the long run? We talked about this with financial analyst Sergei Drozdov.

“I don’t understand why it was necessary to bring the situation to the extreme,” the interlocutor of “MK” is perplexed. — This left the regulator no choice: they had to raise the rate by 350 basis points at once.

All my colleagues are also guessing, putting forward a variety of versions – from conspiracy theories to strictly economic ones. If the goal was to strengthen the ruble exchange rate, it could have been done through other instruments.

However, the result is obvious: the ruble began to rapidly strengthen on Monday, immediately after the unscheduled meeting of the Central Bank was announced. However, it is still too early to talk about a break in the trend. I do not rule out that other decisions by the regulator will follow.

As they say, your own hand is the master. The Central Bank is well aware of which of the Russian players is responsible for the acceleration of the course, this can be seen based on trading volumes. You can “call on the carpet” and at least threaten with a pen. But that doesn’t happen. When foreigners were present on the market, everything was much more complicated in terms of methods of influence.

– To what extent will the decision of the Central Bank help the ruble?

– If we draw analogies with 2014, then something similar happened: at first the rate was raised by 1 percentage point, but the ruble did not react. Then they got together at night and raised it, it seems, by 3%. Then the measure led to a trend reversal: a long process of strengthening the Russian currency began. It is hard to say what will happen now: the situation in 2014 (macroeconomic and financial) and the current situation are completely different things. To consolidate the result, it would be nice to do something else.

– What exactly?

– The step of raising the key rate is too big, and without additional measures it may not work in the medium term. Recall what was done in March 2022, when the exchange rate collapsed to 120 rubles per dollar: exporters were obliged to sell the lion’s share (80%) of foreign exchange earnings, foreign exchange controls were introduced, and non-residents were blocked on the market. However, if the financial authorities would repeat all this now, the need for the current decision would disappear by itself. Not to mention the fact that such a rate puts an end to investment activity: loans become inaccessible to businesses, whose costs increase, which are eventually shifted into prices.

Read also: The Central Bank explained the sharp increase in the key rate in Russia