In their latest review, the regulator assessed preinflation the impact of a weaker ruble on inflation as local, while the effect of the whole situation with coronavirus will be more news, he said. Moreover, most Central banks in developing countries followed the US Federal reserve and cut their key rates, in particular so did the Central banks of Turkey, Brazil, Argentina, Indonesia.
the Bank of Russia came up with a way of dealing with low oil prices
In the basic version of the Bank of Russia will leave the size of the key rate unchanged, says the head of analytical Department of Bank “Zenith” Vladimir Evstifeev. This should help support the ruble. However, its scale will depend on the behavior of foreign markets – in the case of the persistence of negative sentiment, the results of the meeting, the Central Bank will only limit the losses of the ruble, said the analyst.
under pressure from external markets, especially oil, the local debt market continues its price decrease, so the increase in the key rate will generate an additional negative trend, says Evstifeev. This will trigger a new wave of foreign capital flight from the ruble bonds to continue will lead to the weakening of the ruble and a rise in inflation expectations. This strategy is inconsistent with the policy of the Central Bank, therefore, to resort to increasing rates would be reasonable only if the persistence of negative market for several months, says the analyst.
Rising oil prices supported the ruble
If the Bank of Russia will go for an emergency increase the key rate, the ruble may weaken to 5-10%, because this solution will cause the outflow of capital from the debt market, said Evstifeev. Now, this scenario looks less real if the Central Bank had no intention to eemergency rate hike, it probably would have done it outside of Board meetings, he said. Besides, according to him, the possibility of stabilization of the situation after the rate hike seem obvious on the background of risks of short-term destabilization.