Russia cuts rate to spur lending, stem ruble bets

Russia’s Central Bank cut its benchmark interest rate for the 10th time since April to discourage speculative ruble trades and ease credit flows.

Bank Rossii cut the refinancing rate by a quarter-point to a record low 8.75 percent and lowered the repurchase rate charged on one- and seven-day central bank loans to 7.75 percent from 8 percent effective Dec. 28, it said in a statement. The bank last lowered the rates by half a percentage point on Nov. 24.

The decision to cut rates may “soften the impact of factors constraining the economic rebound and will make the tendency toward GDP growth more sustainable,” Bank Rossii said. With bank liquidity rising, the cuts may limit the inflow of short-term foreign capital that could lead to volatility on the ruble market, according to the statement.

The central bank has cut the refinancing rate from 13 percent in April after the world’s biggest energy exporter lurched into its deepest economic decline since the government began regularly updating economic data in 1995, contracting 10.9 percent in the second quarter and 8.9 percent in the third. The bank has eased policy to aid the recovery and stem speculative inflows that have fueled ruble volatility.

There’s some evidence the Moscow-based bank’s currency policy is working. The ruble has lost 2.7 percent against the dollar since Nov. 11, when it reached the strongest level of the year, after gaining 13 percent in the previous three months. Bank Rossii’s efforts to deter speculation are “appropriate,” International Monetary Fund senior Russia representative Odd Per Brekk said last month.

Russian authorities are trying to discourage the use of the ruble in so-called carry trades, in which investors borrow in low-yielding currencies to buy high-yielding currencies that can generate a quick profit.

Russian equity funds drew $59.5 million in the seven days ended Dec. 16 after posting an inflow of $181.7 million a week earlier, according to EPFR Global.

The country may post a net capital outflow in the fourth quarter after oil prices retreated in December and investors fled emerging-market assets on concerns about Dubai’s debt restructuring, central bank Chairman Sergey Ignatiev said on Dec. 22.

(Source: Bloomberg)

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