Will European Central Bank help the ruble?

Will European Central Bank help the ruble?

The head of the regulator spoke about the expansion of the monetary stimulus programme. In the first place, it has cut its main refinancing rate to zero from 0.05%, its marginal lending rate fell to 0.25% from 0.3% and the deposit rate was cut to minus 0.4% from minus 0.3%. These decisions will take effect from March 16.

It also expanded its monthly bond-buying programme to 80 billion euros a month from the previous 60 billion euros. It will add investment grade euro-denominated bonds issued by non-bank corporations to the assets it can buy. The new program will take effect in April.

Also, the ECB decided to launch a new series of four targeted longer-term refinancing operations (TLTRO II), which will have a maturity of four years from their settlement date. 

The European Central Bank has launched a program of quantitative easing, following the example of the US Federal Reserve in January last year. The head of the European Central Bank, Mario Draghi, is going to eliminate major threats for the European economy: too high a level of unemployment, weak growth in lending and the risk of deflation.

Firstly, the regulator decreased its main refinancing rate, which makes deposited funds unprofitable and increases the availability of loans. Secondly, the redemption of asset-backed bonds and targeted longer-term refinancing of banks, which are also intended to facilitate lending to the real economy.

Some experts noted that the ECB's actions will have a positive impact on oil prices (the stimulation of the European economy will lead to an increase in energy demand, neutralizing oversupply), thus strengthening emerging-market currencies, including the ruble.

An associate professor at the Institute of Business Administration and Management of RANEPA, Candidate of Economic Sciences Teimuraz Vashakmadze, said in an interview with a correspondent of Vestnik Kavkaza that although the ECB has taken these measures to support the European economy, it will affect the ruble indirectly. "So far, the ruble is affected by oil prices, so it is difficult to determine the contribution of the ECB's actions," he said.

"In general, the European Bank plans to stimulate its economy, following Russia's example: that is, it increases satiety and reduces quantitative rates," the expert stressed, adding that similar actions are impossible in Russia now.

"In Russia such measures will boost inflation. In Europe inflation is low and the President of the ECB Mario Draghi is trying to stimulate European households and other businesses. These measures make it uncomfortable for economic agents to keep their money in banks and make them invest in the development of business and the economy," Teimuraz Vashakmadze explained.

The Associate Professor of the stock markets and financial engineering department of the Faculty of Finance and Banking of RANEPA, Sergey Hestanov, in his turn, drew attention to the fact that these measures will have an impact on the ruble through the interaction of the euro-dollar. "On the one hand, the EU is the largest trading partner of Russia, but, on the other hand, Russian exports to the EU are paid in dollars. Therefore, weakening of the euro against the dollar would not have much impact on the Russian business," he expects.

"Measures taken by the ECB quite clearly indicate that the situation in the European economy is very heavy and there are no other measures," Hestanov added, noting that the impact on the dollar will be weak, as the trade volume in the US currency is higher than in euro.

The expert agreed that the Russian Central Bank will not repeat the ECB's actions in the near future. "Theoretically, the Russian Central Bank may ease its monetary policy, but it will cause a strong devaluation of the ruble and high inflation," the Associate Professor of the stock markets and financial engineering department of the Faculty of Finance and Banking of RANEPA concluded.