Ruble Obtained Some Ground After CBR Hiked Key Rate to 20 Percent

On February 28 the Central Bank of Russia suddenly hiked its key refinancing rate from 9.5% to 20% saying “external conditions for the Russian economy have changed dramatically. An increase in the key rate will make it possible to ensure an increase in deposit rates to the levels necessary to compensate for the increased risks of [ruble] devaluation and inflation. This will help maintain financial and price stability and protect citizens' savings from depreciation”.

The Bank of Russia also said it will make further decisions on the key rate based on an assessment of risks from external and internal conditions and the reaction of financial markets, and taking into account the actual and expected inflation dynamics relative to its target, as well as overall economic development over the forecast horizon. Also CBR decided to increase the amount of collateral for credit institutions used in reciprocal transactions. Beginning February 27, 2022, extends the list of core activities of legal entities acting as obligated parties or borrowers under loan agreements and adjusts the adjustment coefficients used to adjust the value of OTC traded securities.

From February 28, 2022, the Bank of Russia will peg their market value to ones actual for February 18, 2022 to determine the value of securities accepted in repo and lending transactions.

Also, beginning February 28, 2022, CBR establishes the mandatory sale of foreign currency at the rate of 80% of the revenue due for Russian exporters, concerning all foreign trade agreements.

Although initially USDRUB skyrocketed past 100 – for the first time in history – proving the currency’s shaky foundations, after the announcement and amid incoming news about the inception of high ranked talks between Russia and Ukraine in Gomel, Belarus, ruble obtained some footing and moved back towards 90 per USD. We expect the ruble to stay below 100 mark in the foreseeable future, so further speculative bets against it will likely bring losses.