Ruble Swap Rate Reduced By Russia

After the inflation stabilized and the economic growth slowed down, Russia has taken a step forward to start the 1st round of monetary easing. Incidentally, Russia is the largest economy among the emerging countries to have raised rates in this year. The Moscow based Central Bank issued a statement to announce its decision to cut the cost to swap the different foreign currencies into Rubles to 6.5%, thereby decreasing it by a quarter point. The deposit was increased by 0.25% to 4.5% by the regulator. The main lending rates were however kept unchanged. These moves were defined as neutral by the regulator for Russia’s monetary policy. These changes will be effective from 11th December, 2012.

Sergei Ignatiev, the Chairman of Russian Central Bank is going to relax the borrowing costs for 3 months. He earlier, in a quest to combat the fastest inflation, increased all of the 21 rates. For the 1st time since last July, the policy makers have described the current rates to be acceptable for the nearest future. Bank of America Merrill Lynch’s Chief Economist, Vladimir Osakovskiy, stated that the latest decision from Russian Central Bank can be deemed as a monetary easing policy, rather than one which tightens the same. According to traders, the three-month borrowing costs are going to decrease by 37 basis points over the next 90 days. If this happens, that will mark the biggest decline in more than 3 years. Incidentally, on 17th May, a jump of 54 basis points was predicted.

The quantity of Rubles being held by the Russian Central Bank on deposits and correspondent accounts indicates the amount of free cash which the banks held. Based on statistics released by the Central Bank, this amount saw a fall of $20.6 billion. This marks the lowest level since 5th October.

According to the chief economist of VTB Capital, Maxim Oreshkin, this move of Russian policy makers may not have a short term effect, but it signals of a reduced volatility in the market on the long term basis. Incidentally, before the decision was announced, Maxim correctly predicted of a swap rate cut and higher deposit rate.

The Ruble increased by 0.5% against USD. The 6-month yields on the Russian Government bonds issued are currently at 5.96%. The Central Bank has conducted Ruble swaps worth 2.85 billion Euros and $3.42 billion in November.