Russia cools off red-hot ruble rally

The Russian ruble weakened to a two-week low on Thursday following an extraordinary meeting of the central bank at which the key interest rate was slashed three percentage points to 11%. The regulator suggested that more cuts would follow as inflation risks subside.

The ruble slid to 65 against the dollar, after reaching a four-year high of 56 on Wednesday. The Russian currency lost 14% to trade at 68 versus the euro, also a two-week low, after having touched a seven-year high of 57 in the previous session.

The ruble started plummeting from those multi-year highs on Wednesday as the market anticipated the central bank's decision. It extended losses after Governor Elvira Nabiullina indicated on Thursday that further cuts could follow at the regulator’s next meeting on June 10.

The Bank of Russia’s latest move was driven by the necessity to stem the ruble’s strength, which had raised concerns about the negative impact on Russia's budget revenue from exports. On Monday, Russia cut the share of foreign currency revenue that exporters must convert into rubles to 50%, from the previous 80%. A rapidly appreciating ruble is a problem for both exporters and the government budget.

Despite the unprecedented sanctions imposed on Russia, surging exports and capital controls have sapped demand for foreign currencies and sent the ruble soaring to its strongest levels in years. Previous government attempts to slow the currency’s rise failed and the ruble continued to appreciate.

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