Boy, those people at the Russian CB sure know how to get a better deal for the Russian taxpayers. They make our U.S. CBers look like pikers.
They must drive a really hard bargain in obtaining a higher price in roubles from their member banks for their USD balances at the Fed.
Story at BBC here.
Russia's central bank has tried unsuccessfully to stabilise the currency, buying roubles in the markets and raising its main lending rate to 10.5%.So you have one part of the govt there raising interest rates, while another part of the govt there is reacting to these rate increases by requiring a higher swap rate in roubles for their USD balances...
As we know about Swap Rates from the post below:
As forward expectations for interest rates change at the CB, so will the fixed rate that the CB demand to enter into new USD swaps.So then as the one group there that provides short term liquidity to members is anticipating higher rates coming from the other IR policy setting group there, they are simply reacting in self interest and demanding a higher swap rate from their member "borrowers" and "getting a better deal for the Russian taxpayers..." while simultaneously lowering the real terms of trade for all of their fellow citizens.
The results of all of this activity we are witnessing is what is known as "return on non-coordination".
6 comments:
Sorry for the noob question.
Are you saying that the Russian CB is making it harder for Russian banks and the rest of the Russian economy to "get" USD by hiking the swap rate therefore putting downward pressure on the rouble but at the same time they're out there buying rouble to keep it from falling.
Again sorry for the dumb question, just trying to get a lay person's understanding of it.
St I dont think they are 'buying roubles'. ..
They are providing USD balances to members for rouble balances..
But at what terms?
If the terms change where they require more roubles for their USDs then more rubles for USDs means the rouble is weaker... looks like a hidden catastrophic systemic flaw in their operations. ..
Iow if the policy interest rate increase causes the liquidity providers to require more roubles per USD liquidity provided, then the rouble goes down...
They think raising the rate helps the rouble... but if the liquidity providers have to use the new policy rate in their operations then this has the opposite effect... makes them provide more roubles to obtain a USD...
Rsp
Ps no such thing as a 'noob question' around here.... ;)
We're all learning. .. rsp
Hi Matt thanks for the reply.
So what you are saying is hiking the lending rate is the same as the Russian CB demanding "more rouble" from member banks to trade for CB USD?
Russia's central bank has tried unsuccessfully to stabilise the currency,buying roubles in the markets and raising its main lending rate to 10.5%.
Also I got the "buying roubles" from the above.
The reporter is suffering under the same beliefs as the rest... reporter doesn't quite understand what is going on...
See the comment thread above with the Drudge link as headline...
See Ryan's comment that has the link to the CBR site in English. ... go to that site you can see how they are increasing the swap rate when the policy rate goes up...
They are the 'price setters' for roubles. .. they just dont know it....
This could get ugly...
"If the terms change where they require more roubles for their USDs then more rubles for USDs means the rouble is weaker"
The central bank shouldn't be issuing its saved USD at all - since that increases circulation of USD in Russia. It should be forcing people to get it in the market place and setting up pre-pack administration lending packages in Roubles to refinance/recapitalise any failed operations.
The Russian authorities need to be forcing losses onto foreign creditors and Russian USD holders - and start blaming the currency war for those losses. Then there will be political pressure for other central banks to start stabilising the situation.
They should require payment for Russian oil and gas in Roubles credited at a Russian bank.
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