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Markets Wait for Central Bank's Decision on Key Policy Rate
July 31, 2015 10:54

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The board of the Central Bank is scheduled to have a policy meeting on Friday. Earlier, analysts predicted that the regulator would lower the key policy rate again to spur lending but under the current circumstances the decision may be – and should be as experts now insist – postponed.
On Tuesday, the Russian Central Bank suspended FX purchases after the rouble saw the worst decline since last December. On Monday, the Bank of Russia bought $160 million instead of the regular $200 million, and since Tuesday it put the operations on hold waiting for the downward trend to reverse, according to a press release.
The US dollar now trades at around 60 roubles, 10 roubles higher than in April-May. Earlier, Russia-IC reported that the US dollar is bound to trade in a band between 50 and 60 roubles within the next six months amid oil price uncertainty, said Economic Development Minister.
According to Alexey Ulyukayev, the exchange rate will fluctuate slightly, reflecting oil price dynamics. Speaking to the Rossia 24 TV Channel, the minister said the main factors going forward would be oil and balance of payments trends.
The projection will hold true unless a major negative financial event occurs like ‘additional turbulence on the global capital markets, a sovereign or a corporate default,’ he added.
The rouble saw a fast depreciation in just two months after strengthening in the spring.
The Central Bank has been taking active steps to halt the national currency from going up any further, including gradually bringing down the key policy rate.
On May 14, the Bank of Russia announced it would take advantage of the strengthening rouble to bolster its gold and foreign exchange reserves to a comfortable level of $500bn. At that point, the reserves totaled around $356bn.
It rejected allegations that its decision to buy foreign currency contradicts its main mandate to target inflation
But it also warned that the tough economic times are not yet over, and the banking sector might still be affected by the shocks.
Article 75 of the Constitution of the Russian Federation establishes a special legal status of the Bank of Russia, gives it the exclusive right to issue currency (Part 1) and protect the ruble and ensure its stability, which is the main function of the Bank of Russia (Part 2). The status, purposes, functions and powers of the Bank of Russia are also spelled out in Federal Law No. 86-FZ, dated July 10, 2002, ‘On the Central Bank of the Russian Federation (Bank of Russia)’, and other federal laws.
According to Article 3 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’, the goals of the Bank of Russia are to protect the ruble and ensure its stability, promote the development and strengthen the Russian banking system, ensure the stability and development of the national payment system, develop the financial market of the Russian Federation and ensure its stability.
As for the banking system, Russia-IC reported that the government launched a program to bolster the country’s banking sector amid the falling rouble, oil prices and restrictions on capital access imposed by the West over Russia’s alleged role in the Ukraine crisis.
The national Deposit Insurance Agency is in charge of handing one trillion roubles in financial aid pledged by the government. According to Vedomosti, 830 billion roubles will be divvied up between the Top 10 lenders. The list includes VTB Group (310 billion), Otkritie (55.1 billion), VEB (20.4 billion), Rosselkhozbank, Gazprombank, Alfa Bank, and Rossia Bank (13.6 billion).
The Russian national currency took a severe hit after oil prices plunged from around $105 to below $50.
Russia has sparked a wave of criticism after it incorporated Crimea into its territory following a referendum on the peninsula with a large ethnic Russian population.a
The US and the EU imposed a raft of sanctions on Russian officials and individuals with close ties to the Kremlin.

Author: Mikhail Vesely


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