Russian Central Bank Shows Erdogan How It’s Done

(Bloomberg Opinion) -- At least the Central Bank of Russia has an adult in charge. Governor Elvira Nabiullina surprised most economists, and traders, with a quarter-point rate increase in the key interest rate to 7.5 percent, citing a pickup in inflation and a shift in the balance of risks toward faster price gains. 

Russian Central Bank Shows Erdogan How It’s Done

This is a measured response to the changing external environment – the drop in the ruble versus the dollar has stoked price gains in a manner that warrants a central bank response. 

It’s a very long way from what we’ve been seeing from the Turkish central bank, which implemented a surprise 625 basis point interest-rate increase Thursday in a desperate effort to stop the rot in the lira and tame runaway inflation. As I argued, it’s far from clear that this move alone will do the trick – President Recep Tayyip Erdogan has already identified the limits to his patience with policy makers’ tightening drive.

Russian Central Bank Shows Erdogan How It’s Done

Russia’s move on Friday is exactly what’s needed to preempt a pickup in inflation, which is a greater source of concern than it had been earlier in the year.

The ruble recovered a little more than 1 percent against the dollar. But it hasn’t got ahead of itself.

It’s not going to all of a sudden head off on a tear – that’s not what you get from a 25 basis point hike. But by suspending foreign exchange purchases for the rest of the year, the central bank is confirming that it won’t create a millstone for its own neck. That’s good news for currency stability.

This modestly hawkish hike should put a floor under the ruble – barring a further leg down in the emerging markets crisis or a worsening of sanctions, these are firm foundations that could allow it to do better from here. Hard to see how anyone could say that about the Turkish lira.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

©2018 Bloomberg L.P.