RUB under pressure, government action hardly helpful

USD/RUB is climbing to new highs almost every day. Yesterday, the currency pair rose above the threshold of 64. Of course, the strong USD is one reason for this develop-ment. However, news from Russia are not supportive either. 

Reportedly, the government has started to destroy food imports from western countries which were discovered by the customs authorities. In response to the US and EU sanctions, Russia has implemented import bans. 

From a rational vantage point, it does not make sense to burn perfectly edible food, particularly since there are certainly enough Russians who urgently need something to eat. Moreover, the measure is a very bad sign. It confirms that the import bans are strictly monitored. 

"This will push up food prices, at the worst possible moment in time. The Russian central bank has just cut its key rate again, even though real interest rates are negative already. If inflation does not slow soon, another bout of exchange-rate weakness is practically inevitable", says Commerzbank. 

In addition, the government's measures show once again that political risks in Russia should not be underestimated. After all, a government which takes emotional, irrational decisions is rarely a good thing for the currency.