The Russian Rouble soared on Friday, to its highest level against the euro in more than two years, heading above 70 to the dollar in Moscow trade before reversing some gains, aided by capital controls and the central bank's decision to slash interest rates again. The Bank of Russia lowered its key interest rate by 300 basis points to 14% for the second time this month, shocking economists who had predicted a lesser cut.
The Rouble is supported by capital controls on Russian markets, while stocks are traded with a ban on short selling and foreign players are prohibited from selling shares in Russian enterprises without permission. The rouble was up 1.6 percent against the euro during the day, trading at 74.20, after touching 74.0525, its highest level since March 2020. After hitting a six-month high of 70.3075, it was 1.4 percent higher against the dollar at 71.09. The rouble mainly ignored the rate decision, but when Governor Elvira Nabiullina conducts a press conference at 1200 GMT, the market will be paying particular attention.
Lower rates help the economy by lowering borrowing costs, but they can also fuel inflation and make the rouble more susceptible to external shocks. After the rate decision, yields on 10-year benchmark OFZ treasury bonds remained unchanged at 10.14 percent.
According to economists surveyed by Reuters, the rouble has firmed in recent days as export-oriented enterprises sold their foreign exchange income to satisfy local liabilities that could top 3 trillion roubles (USD43 billion) this month.
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