The Russian ruble is struggling for direction in the middle of the trading week as a blend of red-hot inflation and better-than-expected economic data put the currency in a predicament on Wednesday. The ruble has been one of the best performing European currencies this year, driven primarily by rallying energy commodities and tightening monetary policy. Can the ruble add to its strength in the final quarter of 2021?
According to the Federal State Statistics Service (FSSS), the annual inflation rate surged to 7.4% in September, up from 6.7% in the previous month. The market had anticipated a reading of 7.1%. Overall, this was the highest inflation figure since June 2016, buoyed by accelerating food (9.2%), non-food products (8.1%), and services (4.2%).
On a monthly basis, the consumer price index (CPI) climbed 0.6%, double what economists had forecast.
Could this prompt the Bank of Russia to pull the trigger on another interest rate hike at its next policy meeting this month? The central bank has not been afraid to tighten policy, even as the economy stumbles.
This comes one day after IHS Markit released its non-manufacturing purchasing managers’ index (PMI) figures. In September, the composite and services PMIs both rose to 50.5 – anything above 50 indicates expansion. This year, these PMI readings only slipped into contraction territory once.
Natural gas futures have been plummeting midweek after Russian President Vladimir Putin announced his country would increase supplies to Europe so the continent can combat the international energy crunch.
Putin noted that gasoline sales to Europe could reach an all-time high, adding that flows through Ukraine would surpass Gazprom’s contract with Kyiv. Pundits have routinely accused the Russian leader of limiting supplies for political reasons.
Crude oil prices have seen tremendous gains in recent weeks, supported by tight global inventories and expectations of a risky winter. This has bolstered the Russian economy and the ruble.
The USD/RUB currency pair picked up 0.12% to 72.4134, from an opening of 72.3237, at 19:10 GMT on Wednesday. The EUR/RUB fell 0.24% to 83.67, from an opening of 83.88.