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Rouble trouble: Is the Bank of Russia intervening?

Elvira Nabiullina, chairman of Russia's central bank.
Andrey Rudakov | Bloomberg | Getty Images
Elvira Nabiullina, chairman of Russia's central bank.

An unexpected spike in the value of the Russian ruble has got currency traders speculating that the Central Bank of Russia may be intervening to prop up the currency.

The ruble rallied by around 3 percent against the dollar Thursday – its best performance since January 2010. This has led to speculation that the central bank has intervened to prop up the currency again.

"The most obvious explanation is that policymakers have intervened heavily on the foreign exchange market," economists at Capital Economics argued in a research note.

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However, the movement could also be down to traders taking action ahead of Russia's central bank meeting tomorrow.

The ruble's roller-coaster ride means that all eyes will be on the Central Bank of Russia's monthly rate-setting committee on Friday, where policymakers are expected to hike interest rates by 100 basis points from its current 8 percent in an attempt to curb inflation.

There is also a chance they could choose to move away from the policy of a fully-floating exchange rate, towards further intervention, although this would dent further Russia's currency reserves (around $406 billion at the moment, according to the International Monetary Fund).

The ruble has been on a downward trend for most of the month, with falls of 7.1 percent against the dollar and 7.3 percent against the euro before Thursday, making it the worst-performing emerging market currency this month, according to Capital Economics.

This is partly a side effect of the continued slide in the price of oil, one of Russia's biggest exports. There are also increasing signs of pressure on Russian consumers, with food price inflation of 11.9 percent in September, according to Bernstein research.

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A weaker ruble seems "inevitable" according to Luis Costa, emerging markets strategist at Citi.

It's not just Russia where a weak ruble will sting. Currency weakness will also continue to hurt European exports to Russia, quite apart from the weakness following sanctions. German exports to Russia were down 16.6 percent in the year to August, compared to the same time in 2013.

However, a weak ruble isn't just a negative for Russia. Timothy Ash, head of emerging markets research at Standard Bank, explains: "a weaker currency a) helps underpin growth, which remains feeble; b) helps buoy ruble budget revenues, offsetting the lower oil price."

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