Closing summary: Russia's central bank to hike rates amid criticism from Kremlin adviser
Every central bank facing a weakening currency faces a tough dilemma: raising interest rates (or otherwise tightening monetary policy) may support the currency, but it will damage economic growth. For Russia, that tension is all the more acute when it is funding a war on its neighbour.
The Russian rouble has weakened further against the US dollar over the course of Monday: Refinitiv data shows one dollar bought 102.37 roubles – after rising above the 100 mark for the first time in 16 months this morning.
It is almost half as valuable agains the dollar as it was just over a year ago, in June 2022. At that point soaring prices for oil and gas – prompted by the invasion of Ukraine – had the perverse effect of raising Russia’s energy export earnings dramatically. That effect has since diminished, however, as customers in Europe in particular have raced to secure alternatives.
Putting your head above the parapet is a rare act in the Kremlin under President Vladimir Putin, but the tension over the currency resulted in an unusual public disagreement.
Russia’s central bank said on Monday that the decline in the value of the rouble did not threaten the country’s financial stability, and blamed rising imports (which essentially require buyers to sell local currency) for the weakening currency. In a statement reported by Interfax news agency, it said:
As well as a significant reduction in the value of exports, there is increased demand for imports related to active growth in domestic demand, partly against the backdrop of high lending rates while government demand remains elevated.
Further monetary tightening is needed to stabilize inflation at 4%. The Bank of Russia holds open the possibility of key rate increase at its next meetings.
The rise in government spending to fund the war has led to steep deficits, which tend to prompt currencies selloffs as well.
Yet Putin’s economic adviser, Maxim Oreshkin, said the main reason for the weak rouble was the central bank’s “soft monetary policy”, in an article for Tass, another news agency.
In other business and economics news today:
The Bank of England suffered a glitch that prevented two key payment systems from opening for several hours. The unspecified “technical issues” were resolved around midday.
UK employers said they plan to raise pay by 5% in the coming year, amid continued competition for workers even as the economy is expected to stutter.
Bidders interested in buying the collapsed budget retailer Wilko have two days to submit their offers as the future of its more than 12,000 employees remains in doubt.
Italy’s prime minister, Giorgia Meloni, has doubled down on a shock decision to introduce a 40% windfall tax on banks, saying she would “do it again” despite having sent lenders’ shares plunging last week.
Fears over China’s economy mounted on Monday as a trust linked to one of the country’s biggest wealth managers failed to meet some payments and a property company suspended trading in its bonds.
You can continue to follow our live coverage around the world:
In the UK, the government has no timetable for returning asylum seekers to the Bibby Stockholm barge
In the US, former president Donald Trump is braced for fourth criminal indictment
In our coverage of the Russia-Ukraine war, strikes on Odesa leave three injured; the rouble falls to 16-month low against dollar
Thank you for reading, and please do join us tomorrow bright and early for more live coverage. JJ
We have not so far had any reports of knock-on problems caused by the Bank of England’s “technical issue” which forced it to close two vital payments systems on Monday.
Central Banking magazine reports that the outage lasted nearly six hours. Yet there are few details of what caused the issue or why it took so long to sort.
Between them, the two systems can easily jump over £1 trillion in payments on a given day. This is from the Bank of England’s annual report on the realt time gross settlement (RTGS) and the clearing house automated payment system (Chaps):
RTGS settles over £720bn on an average day. A new value record of £542bn was set for Chaps on 31 January 2022, exceeding the previous daily record of £485bn.
The Bank has had previous problems with the Chaps system. In 2014 it had to explain why payments for house purchases had been delayed by 10 hours – and had to keep the payment system open for hours to deal with the backlog of payments that needed to be settled.
The previous issues were thought to be caused by the addition of a new bank to the system.
You can read more here:
Technical problems at the Bank are all the more sensitive because of its role as regulator and monetary policy setter rolled into one.
In December 2019 it was revealed that a supplier to the Bank had been offering high-speed audio feeds of monetary policy press conferences. The revelation dealt a blow to the Bank’s credibility in securing crucial national infrastructure.
