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The Bank of Russia Convenes Urgent Meeting in Response to Ruble Depreciation

In a move reflecting growing concerns over the stability of the nation’s currency, the Central Bank of Russia has called for an emergency meeting, as reported by Bloomberg News on August 15. This decision was prompted by the recent significant depreciation of the ruble, which slipped past the critical threshold of 100 per US dollar for the first time since March of the previous year.

Amid the mounting economic challenges, the central bank has indicated that its resolution on policy rate adjustments will be unveiled following the conclusion of the urgent meeting. This strategic move underscores the bank’s commitment to addressing the current currency volatility.

Notably, the recent decline in the ruble’s value has been marked by a series of events. In July, the Central Bank of Russia took the unconventional step of raising interest rates to 8.5%, marking the first such increase since the dramatic emergency rate hike to 20% that followed Russia’s incursion into Ukraine in February of 2022.Responding to these developments, the ruble staged a modest recovery of 0.8%, settling at 98.5975 rubles per US dollar. This rebound follows the ruble’s prior weakness, which had seen it breach the 101-ruble-per-dollar mark. This year alone, the ruble has encountered a staggering 27% depreciation, positioning it as the third weakest currency among emerging markets.

The urgency of the central bank’s meeting can be attributed to a multitude of factors. A key catalyst was an op-ed penned by Maxim Oreshkin, an economic advisor to Russian President Vladimir Putin, which was published in Russia’s TASS news agency. Oreshkin critiqued the nation’s current economic approach, referring to it as a “monarchy.” This perspective ties the ruble’s fragility to the monetary policy enforced by the Central Bank of Russia.

In an attempt to mitigate the ruble’s decline, the Central Bank of Russia previously communicated that it would abstain from purchasing foreign currency on the domestic market for the remainder of the year. However, these efforts have fallen short of expectations, as acknowledged by JPMorgan Chase & Co. The financial institution indicated that these measures had “failed to stabilize the currency,” and further predicted that the central bank might raise interest rates to 10% by year’s end, deviating from the initial anticipation of a 9% increment.

Preceding the announcement of the urgent meeting, the Central Bank of Russia clarified that the sharp depreciation of the ruble this year could be attributed to an 85% contraction in Russia’s current account surplus during the January-July period compared to the same interval in the prior year. Despite this considerable setback, the bank conveyed confidence in the absence of imminent financial stability risks stemming from the ruble’s devaluation.

As the nation braces for the outcome of the central bank’s emergency session, market participants and economic experts alike await the unveiling of the bank’s policy adjustments, which hold the potential to shape the trajectory of the ruble and Russia’s economic landscape in the coming months.

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