MOSCOW – With inflation showing clear signs of picking up, Russia’s central bank said Wednesday it will look to help companies with their foreign debts — a move it hopes will ease the pressure on the national currency.
Following on from other measures to stabilize the ruble, such as a big increase in its key interest rate to 17 per cent, the Central Bank said it will offer dollar and euro loans to banks so they can help major exporters that need foreign currencies to finance operations.
That could really help as many Russian companies have been locked out of Western capital markets following the sanctions imposed on the country for its involvement in Ukraine. That’s a problem for those that have to repay or refinance debts in dollars and euros. The slide in the ruble this year has made that more difficult.
Some firms have even had to sell rubles to get their hands on foreign currencies and that’s put further pressure on the ruble. Oil company Rosneft, for one, was earlier this month criticized for accentuating the ruble’s fall.
Stabilizing the ruble, which is one of the world’s worst-performing currencies this year following the slide in oil prices and the sanctions imposed on Russia, is a priority for the country’s monetary authorities.
Recent measures, which also include forcing state-controlled enterprises to sell excess foreign currency, look like they are working. The ruble has been trading around the 55 mark against the dollar over the past few days having slid at one point last week to around 80.
One key concern over the Russian economy is how much the 50 per cent or so fall in the ruble this year will ratchet up consumer price pressures — a falling currency makes imports more expensive.
The country’s statistics agency reported Wednesday that consumer prices rose 0.9 per cent last week when the ruble was in freefall — there was clear evidence then that retailers of imported products, such as electronics and cars, were raising prices in the wake of the ruble’s fall. The weekly rise was the biggest since records began in 2008.
The combination of a falling currency and rising inflation also helps explain why some individuals have been looking to get their money out of the banks.
Although a full-blown bank run has been avoided, the deputy chairman of Russia’s largest lender warned Wednesday that remains a possibility.
Alexander Torbakhov conceded to Russian news agencies that the bank was “ready for a new wave of panic” after admitting that some individuals had taken their deposits out last week.
However the ruble performs over the coming days and weeks, the Russian economy is predicted to fall into recession next year and inflation to spike — many forecasters expect the annual inflation rate to double from the current 10 per cent. Some, like ex-Finance Minister Alexei Kudrin, are warning of a full-blown crisis.
On Tuesday, credit rating agency Standard & Poor’s put the country on notice that it may face a downgrade following “a rapid deterioration of Russia’s monetary flexibility and the impact of the weakening economy on its financial system.” Any cut from the current BBB- would push Russia’s debt rating into so-called “junk” status and make it extremely expensive for Russia to borrow money abroad.
A think-tank run by Kudrin, a former associate of President Vladimir Putin, published a report Wednesday showing growing potential for street protests as the economy tanks. Mikhail Dmitriyev, author of the report, said Putin’s approval rating is likely to fall as inflation rises and living standards decline.
“We see some indications of a relatively large potential for protests which are economically driven,” he told reporters.