At least the Central Bank of Russia has an adult in charge. Governor Elvira Nabiullina surprised most economists, and traders, with a quarter-point rate increase in the key interest rate to 7.5 percent, citing a pickup in inflation and a shift in the balance of risks toward faster price gains.
This is a measured response to the changing external environment – the drop in the ruble versus the dollar has stoked price gains in a manner that warrants a central bank response.
It’s a very long way from what we’ve been seeing from the Turkish central bank, which implemented a surprise 625 basis point interest-rate increase Thursday in a desperate effort to stop the rot in the lira and tame runaway inflation. As I argued, it’s far from clear that this move alone will do the trick – President Recep Tayyip Erdogan has already identified the limits to his patience with policy makers’ tightening drive.
Russia’s move on Friday is exactly what’s needed to preempt a pickup in inflation, which is a greater source of concern than it had been earlier in the year.
The ruble recovered a little more than 1 percent against the dollar. But it hasn’t got ahead of itself.
It’s not going to all of a sudden head off on a tear – that’s not what you get from a 25 basis point hike. But by suspending foreign exchange purchases for the rest of the year, the central bank is confirming that it won’t create a millstone for its own neck. That’s good news for currency stability.
This modestly hawkish hike should put a floor under the ruble – barring a further leg down in the emerging markets crisis or a worsening of sanctions, these are firm foundations that could allow it to do better from here. Hard to see how anyone could say that about the Turkish lira.
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Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
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