Russian inflation hits 20-year high in April

MOSCOW: Russia’s annual inflation jumped to a two-decade high of 17.8 per cent in April, fuelled by Western sanctions over Moscow’s military campaign in Ukraine, the statistics agency said on Friday.

Since President Vladimir Putin moved troops into Ukraine on February 24, Russia has been hit with a barrage of international sanctions, including embargoes on key exports, accelerating already high inflation.

Inflation of food prices, a huge concern for Russians on low incomes, has reached 20.5 per cent year-on-year, according to Rosstat.

Pasta has gone up by 29.6 per cent, buter by 26.1 per cent, and fruit and vegetables by 33 per cent.

Annual inflation could reach 23 per cent this year before slowing down next year and returning to the target of 4 per cent in 2024, according to the Central Bank.

“Looking ahead, we expect monthly increases in prices to ease further from May,” Capital Economics said.

Inflation has been speeding up for months due to a number of factors including the postpandemic recovery and high prices for raw materials. Putin’s decision to send troops to Ukraine has added sanctions and the resulting logistical difficulties as factors.

Putin on Thursday said Western countries were worse hit by sanctions imposed on Moscow over Ukraine than Russia, which he insists has been resilient in the face of “external challenges”.

Separately, the Russian central bank said on Friday it will temporarily ease requirements for limits on open foreign currency positions for banks, which should help cap risks for banks’ capital and allow internal hedging of open forex positions.

The decision which will be effective until the end of this year is designed to secure the stability of the banking sector and should not be used by banks for speculation on the forex market, the central bank said.

The Russian rouble weakened on Friday ater rallying past 63 per dollar in Moscow for the first time since early February 2020 and touching a near five-year high against the euro, supported by continuing restrictions on currency trading.

The rouble is the world’s best-performing currency this year, although this is due to artificial support from capital controls Russia imposed to shield its financial sector in late February ater sending tens of thousands of troops into Ukraine.

The exchange rate is mostly being driven by export-focused companies that have to convert their foreign currency revenues, while demand for forex is limited as imports into Russia have waned amid disruptions in logistics and sweeping Western sanctions.

As of 1133 GMT, the rouble had eased 1.4% to 64.17 against the dollar, ater earlier touching 62.6250, its strongest mark since early February 2020. President Vladimir Putin on Thursday cited the rouble rally as an example of Russia’s sound performance under sanctions.

Against the euro, the rouble shed 2% to 66.67 , moving away from 64.9425, which it touched in early trade on the Moscow Exchange. That was its strongest since June 2017.

Banks are offering to buy roubles at much weaker levels, however. Russia’s No.1 lender Sberbank offered to sell dollars and euros for 72.59 and 76.41 roubles, respectively.

Promsvyazbank analysts said they expected the rouble to return towards 65 to the dollar towards the end of the session as market players close positions going into the weekend.

Despite some weakness in the rouble ahead of the weekend, levels of 55-60 roubles to the dollar look achievable in the short-term, said Dmitry Polevoy, head of investment at Lockoinvest.

Russian stock indexes were mixed.

The dollar-denominated RTS index was down 1% at 1,129.0 points, earlier touching its strongest point since Feb. 22 of 1,631.11. The rouble-based MOEX Russian index rose 0.6% to 2,312.0 points.

Separately, daily nominations for Russian gas deliveries to Slovakia via Ukraine rose on Friday, data from Slovakian operator TSO Eustream showed.

Nominations via the Velke Kapusany border point rose to around 946,741 megawat hours (MWH) per day, versus 625,135 MWH per day on Thursday, the data showed.

Russia’s Gazprom has reduced the booked capacity for gas transit through Ukraine via the Sudzha entry point on May 13 to 60.8 million cubic metres (mcm) from the previously announced 65.7 mcm, Ukraine pipeline operator data showed on Friday.

The state-run operator said earlier that Gazprom had booked capacity of 53.45 mcm via Sudzha for Thursday.