The ruble market appears to have reversed the trend that the Russian currency has set over the past few weeks. While the ruble has been permanently strengthening against the dollar since the beginning of April, the last two trading days of the past week brought a reversal.
The ruble lost more than 17 percent of its value against the US dollar during Thursday and Friday. While on Thursday one dollar was equal to less than 56 rubles, on Friday afternoon it was almost 68 rubles. The ruble ended Friday’s trading at around 65.75 rubles per US dollar.
Interest rate reduction
The immediate cause was a dramatic cut in the key interest rate by the Bank of Russia. The new rate is 11 percent. The Bank of Russia cut the rate for the third time in a row, by three percentage points each time. The Russian central bank responded to the dramatic reduction in the inflation rate, which was the most significant in more than 20 years.
State bankruptcy of Russia?
The Bank of Russia admitted that further cuts in the base rate may be coming. Russia’s central bank has also responded to the increased risk of sovereign default as the United States has restricted another way for Russia to repay its foreign bond obligations.
