Research & Insights #38

Russian central bank raises interest rate to 15%

On October 27, the Central Bank of Russia raised its key rate from 13% to 15%. It is the fourth consecutive time the bank hiked the borrowing costs recently. The bank cited a weak rouble and stubborn inflation pressure, which have “significantly increased to a level above the Bank of Russia’s expectations,” said the national lender in a statement. According to French economist Jacques Sapir, this decision is justified more by inflation expectations than by exchange rates. In the Russian economy, bank credit plays a limited role in investment, and state-subsidized interest rates are high, according to him. Since October 10, the rouble has risen steadily against the yuan, the US dollar and the euro, thanks to a recovery in the balance of payments. This recovery is in turn explained by the rise in hydrocarbon prices and the government’s decision to reapply strict capital controls for a further 6 months. 

Saudi Arabia and Russia maintain their oil production cuts
Saudi Arabia and Russia have reaffirmed that they will continue to limit their oil production by more than 1 million barrels a day until the end of the year, even as turbulence in the Middle East shakes world markets. Riyadh cut its daily crude production by 1 million bpd and Moscow reduced its exports by 300,000 bpd, in addition to the cuts already made with the other OPEC+ countries. They stated that the reduction was intended to support the stability and equilibrium of oil markets. Oil prices have fluctuated in recent weeks due to the conflict between Israel and Hamas and the risk of it escalating into a wider regional conflagration. According to the International Energy Agency, a wider conflict could prompt the Saudis and Russia to review their reduction plans, and warned of the risks that high fuel prices pose to inflation and the global economy.

US, EU start talking to Ukraine about peace talks with Russia
US and European officials have started talking to their Ukrainian counterparts about possible peace talks with Russia and what Kiev might have to give up to reach a deal, NBC television reported, citing US officials. To encourage Zelensky to consider negotiations, NATO could offer Kiev security guarantees, even if Ukraine does not formally become a member of the alliance, officials said. The talks with Kiev come as U.S. and European officials worry about the stalemate in the conflict and the West’s ability to continue providing aid to Ukraine, NBC quoted the officials as saying. Russian Foreign Ministry spokeswoman Maria Zakharova said Moscow has always been and remains open to a diplomatic solution to the crisis and is ready to respond to serious proposals, while Kiev has halted and banned negotiations with Russia.

EU leaders in favor of tapping revenues from Russia’s frozen assets
European leaders have approved plans to use the billions of euros generated by frozen Russian assets to help Ukraine. The European Commission is expected to present legal proposals in early December. The Central Bank of Russia has US$300 billion in frozen assets, most of which – 180 billion euros according to the Belgian government – is blocked at Euroclear, based in Brussels. Coupon payments and bond redemptions due on immobilized Russian assets have remained blocked at Euroclear, as they cannot be paid to clients subject to sanctions. Several countries are skeptical about the use of this Russian cash, due to legal problems relating to the ownership of the funds.“You need a legal foundation and a way of doing it without destabilizing international financial flows. The macroeconomic impact is quite big,” said recently Belgian Prime Minister Alexander De Croo in a speech to diplomats.

Leave a Reply

Your email address will not be published. Required fields are marked *