Inside Financial Markets

Further Drop in Oil Prices – Opportunity for Russia?

If oil prices tumble below $40, then the Russian Central Bank could be inspired to interrupt its rate-cutting agenda.

“If the situation on the foreign-exchange market changes as a result of a significant drop in oil prices — to $40 a barrel, with fluctuations between $40 and $45 — then the central bank will probably halt the process of cutting the rate,” Kremlin economic aide Andrey Belousov told Bloomberg in an interview.

Notably, Belousov’s statement does not come as a complete surprise.

Though the bank slashed rates for the fifth time this year in early August, the cut was less than expected amid a weaker ruble (and lower oil prices). Additionally, the bank took out the phrase “ready to continue cutting,” signaling a potential shift in the central bank’s strategy.

Already back then, analysts suggested that the bank would begin to closely monitor the ruble’s moves.

“Policymakers are no longer committing themselves to lowering interest rates further,” Liza Ermolenko, an analyst at Capital Economics, told Bloomberg several weeks ago. “Future interest-rate decisions are likely to be determined by moves in the currency.”

Still, that doesn’t mean arresting the rate-cutting program will be an easy choice for the bank, as it is keen to keep cutting rates because of Russia’s anemic economy.

“On the one hand, the recession in the economy and extremely tight credit conditions argue for a rate cut,” Ermolenko told Bloomberg. “But on the other hand, easing policy at the time when the ruble is weakening sharply could cause it to fall even further, creating risks for inflation and financial stability.”

fut_chart (2)

The ruble on Monday tumbled to a six-month low against the dollar. The currency is trading around 65.7 per dollar, and it got down as low as 65.9 earlier in the day. To date, it has tumbled about 25% since its peak in mid-May.

The ruble’s drop followed the recent drop in the oil price. Brent crude, which is used to price Russia’s main export blend, is trading around$48.59, slightly above its 2015 low of $45.19.

Baqar Hussain

A Wannabe CFO, just had stepped in the corporate sector, willing to explore every aspect here and learn as mush as i can, awareness for those who dont, get the info where ever possible and stay up to date always.

The Canadian Securities Institute


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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)