by Chris Becker
As I highlighted in my Macro Morning report, it seems we might be repeating the 1997/98 currency and debt default crisis with Russia’s currency and bond markets in freefall on the back of the collapse in oil prices and the sanctions facing its invasion of Ukraine. Like Australia, Russia’s economy is welded to commodity exports, namely energy, where it gets 50% of its budget revenues.
The ruble is down by nearly 50% this year and 10 year bond yields have ballooned to 13.4%, as investors everywhere are scrambling to de-risk their Russian exposure especially on the short end side of the yield curve as USD funding remains the fore. A focus on short ended debt sale is backfiring, as last week the Bank of Russia had to cancel its auction of $11billionUSD in 3 year bonds as it received NO bids….
So with this at hand, the Russian central bank surprised everyone this morning with an unscheduled and massive rate hike – from 10.5% to 17%!
Now there’s some return on your savings account!
Although with inflation popping 9% and a currency crisis brewing, I’m not sure many Russians will be stockpiling rubles into their local banks.
Maybe stolichnaya instead?
Texture from the press release (via Z/H)
The Board of Directors of the Bank of Russia has decided to increase from December 16, 2014 the key rate to 17.00% per annum. This decision was driven by the need to limit significantly increased in recent devaluation and inflation risks.
In order to enhance the effectiveness of interest rate policy loans secured by non-marketable assets or guarantees for a period of 2 to 549 days from 16 December 2014 will be granted at a floating interest rate established at the level of the key rate of the Bank of Russia increased by 1.75 percentage points (Previously these loans for a period of 2 to 90 days, provided at a fixed rate).
In addition, to enhance the capacity of credit institutions to manage their own currency liquidity was decided to increase the maximum amount of funds to repurchase auctions in foreign currency for a period of 28 days from 1.5 to 5.0 billion. US dollars, as well as on similar operations for a period of 12 months on a weekly basis.