After a massive overnight rate hike by the Central Bank of Russia, the ruble staged a two-hour rally yesterday morning before rolling back to new historic lows.
The surprise central bank decision to raise the rate from 10.5 percent to 17 percent came in the early hours yesterday in a desperate attempt to prop up the troubled currency.
It is the biggest interest rate hike since 1998, the year when Russia defaulted on its sovereign bonds.
Photo: AFP
The move was meant to make it expensive for currency traders to buy rubles and sell them on the market.
The ruble in the morning regained almost all of its losses from Monday’s 10 percent decline, the biggest fall since the 1998 economic meltdown, but it rolled back and was down 3 percent at 66 to the US dollar by noon in Moscow.
Central Bank of Russia Chairwoman Elvira Nabiullina yesterday said in televised comments that the decision should stem inflation and encourage Russians to open ruble-denominated deposits.
Nabiullina conceded that the ruble’s value will not be immediately influenced by the rate hike and said it will take the ruble “some time” before it finds a fair value.
The ruble has lost half of its value this year and the decline intensified in the past months as the economy came under pressure from Western sanctions and plunging oil prices.
“With these steps, the central bank is looking to bring stability back to the [foreign exchange] market, which has been behaving irrationally over the last few weeks,” Moscow-based investment bank Sberbank-CIB said in a morning note. “This state of affairs required extraordinary measures from the central bank — and such measures have now been taken.”
However, Sbergank-CIB added that this step alone is unlikely to reverse the collapse of the ruble, saying that “the longer term stabilization will depend on the consistency of the regulator’s [the central bank’s] actions and its degree of commitment.”
Russian stocks were moderately declining yesterday morning with the MICEX benchmark 1.5 percent lower, reflecting the rate hike’s pressure on businesses.
A decline in the price of oil has weighed heavily on the Russian economy as Russia depends on oil revenue and lacks the diversification to withstand severe economic downturns. The average price of a barrel of oil has dropped below US$56 from a summer high of US$107.
The government recently downgraded its forecast for next year, predicting that the economy will sink into recession.
The central bank has gradually raised the rate from 5.5 percent early this year. On Thursday last week, it tried unsuccessfully to stem the ruble’s slide by boosting its key rate by 1 percentage point to 10.5 percent.
The rate increase, although it can help stabilize the ruble, could spell serious economic troubles ahead, making it more expensive for companies to borrow funds.
Former Russian finance minister Alexei Kudrin said on Twitter following the rate hike that “the fall of the ruble and the stock market is not just a reaction to low oil prices and the sanctions but also [a show of] distrust to economic policies of the government.”
Kudrin added that the rate hike “should be followed by government measures to raise investor confidence in the Russian economy.’’
He did not say what steps he advocated.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to