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UKRAINE UPDATE: 16 AUGUST 2023

Emergency rate hike fails to stop rouble’s slide; Russian missiles hit civilian targets

Emergency rate hike fails to stop rouble’s slide; Russian missiles hit civilian targets
A handout picture made available by the Volyn Region Prosecutor's Office shows rescuers working at the area where a rocket hit an industrial enterprise in the Lutsk of Volyn area, western Ukraine, 15 August 2023. (Photo: EPA-EFE / Volyn Region Prosecutor's Office Handout)

Russia imposed an emergency interest rate hike and said another was possible as it tried to stem a plunge in the rouble, but the move didn’t prevent the currency from sliding in a drop that has cast a pall over the economy.

Russian missiles hit civilian targets in eight regions, Ukrainian authorities said, killing three people and wounding at least five more in attacks that hit a kindergarten, a sporting hall and an industrial site. Attacks on Ukraine’s energy network knocked out power to more than 400 settlements, the grid operator said.

Chinese Defence Minister Li Shangfu told a security conference in Moscow that military relations between China and Russia are a “good cooperation model”, which doesn’t target any third party.

Latest developments 

Russia discusses return to capital controls to stem rouble slump

Russia may partially reinstate capital controls to stem a slump in the rouble to levels not seen since the start of the war in Ukraine.

The proposal to mandate sales of export revenues was discussed at a meeting between the government and exporters on Monday, before the Bank of Russia announced an emergency rate hike, according to four people familiar with the discussions, who asked not to be named because details are private. Two of the people said that no breakthrough was reached and another meeting may be held later this week. 

The Bank of Russia raised its benchmark rate to 12% from 8.5% on Tuesday after the rouble briefly broke through 100 to the dollar for the first time since March last year. Forced sales of export revenues, along with other measures such as limits on bank transfers of foreign currency, helped to stem the rouble’s slide after the start of the war.  

The rouble appreciated after the rate announcement before reversing gains and is still among the three worst performers in developing economies this year with a loss of about 25%. Without additional measures such as the central bank interventions or mandatory sales of export revenues, it may take several months for the rouble to strengthen, according to Sofya Donets, an economist at Renaissance Capital. 

With much of the central bank’s reserves already frozen by sanctions, policymakers will be reluctant to wade into the currency market with direct interventions. 

 

 

 

Hungary agrees to changes in nuclear plant deal with Russia

Hungary will delay interest payments to Russia that it owes in a Moscow-backed financing deal for the Paks II nuclear power plant, and it will make them in euros, the government in Budapest said in a decree published late on Monday.

The project will come on line only early next decade, much later than planned, due to significant delays tied to European Union opposition to the investment and Hungarian regulators’ complaints about the quality of plans from Rosatom, which is building the facility.

Russia published new amendments to the financing deal that it had agreed with Hungary last month, under which it deferred payments and required the loans to be paid in euros.  

Russian oil switched between tankers off Spanish enclave in north Africa

Russia’s flagship crude oil was switched between tankers off the coast of a Spanish enclave in north Africa after a four-month hiatus in the activity.

The Tiburon, Spanish for shark, collected about 100,000 tonnes of Urals crude originally loaded at the Baltic Sea port of Ust-Luga from a similar-sized vessel, the Lucia, over the past week.

The switch, the first since early April, revived a logistical exercise that was critically important for Russia’s petroleum supply chain in the aftermath of a European Union ban on purchases of crude oil from its one-time trading partner that began late last year.  

Western sanctions on Russia — as well as the EU’s imports ban and a Group of Seven nations imposed price cap — coincided with some contorted shipping movements to enable the country’s barrels to continue to flow. 

Western firms aren’t allowed to provide services including shipping and insurance if the oil costs more than $60 a barrel. 

The Tiburon is now sailing toward Egypt’s Suez Canal but not showing its final destination. The main Asian buyers are in China and India. The Lucia is headed back in the direction of the Baltic Sea. 

Russia lifts oil export duty to 2023 high as prices exceed cap

Russia will raise the export levy paid by its oil producers in September to the highest level this year, boosting state coffers as the price of the nation’s crude surges.

The government plans to increase the oil export duty to $21.40 per ton next month, up by more than a quarter from August, the Finance Ministry said in a statement on Tuesday. That equates to around $2.92 a barrel.   

Oil taxes are a key source of revenue for Russia, which is seeing its budget strained by rising costs to fund the Kremlin’s war in Ukraine and Western sanctions on the economy. Crude prices have risen globally amid supply reductions by the Opec+ alliance and robust demand. Russia, one of the leaders of the producer group, plans to keep its exports curbed next month.

Those factors have helped propel the price of Russian crude above the $60-a-barrel threshold set last year by the Group of Seven nations — an effort to limit the flow of petrodollars to Moscow while keeping the global oil market supplied.   

Wheat falls for third day as Black Sea shipments continue

Wheat dropped for a third day as grain exports continued from Russia and Ukraine even as tensions remain in the Black Sea region. 

Benchmark futures in Chicago traded near $6.365 a bushel after sliding by 1.9% on Monday. Russia opened fire on a ship over the weekend to force the vessel to stop for checks, a continuation of hostilities in the key trade route after Ukrainian drones attacked Russian vessels earlier this month.

The US Department of Agriculture (USDA) raised its estimate for shipments from Russia on Friday and lifted its estimate for US wheat stocks at the close of 2023/24 by more than analysts had expected on average.

The fact that exports have continued is one of the key reasons for the decline in prices, according to CRM Agricommodities.  

The USDA raised its estimate for Russian wheat exports to 48 million tonnes for the 2023-24 season. That means almost a quarter of the world’s trade will now come from Russia. DM

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