Russia must face inflation again.

The Russian ruble has experienced a slight appreciation after the Central Bank of Russia (CBR) announced that there would be a special policy meeting today. Investors and analysts predict that there could be a rate hike of up to 10%, following a previous rate increase to 8.5%, which was higher than the anticipated 100 basis points. This substantial rate hike could be due to the continuous weakening of the ruble and the potential resurgence of inflation issues.

The announced inflation rate on August 9th showed a significant increase, with inflation reaching 4.3%, surpassing the anticipated 4.1%. This is a notable rise from the previous month's 3.3%, indicating a continuous upward trend since April. This suggests that inflation hasn't peaked yet and could rise further despite the interest rate increase to 8.5% in the previous cycle. The CBR still hopes to bring inflation back to the target of 4% by 2025.

In the past week, the CBR suspended foreign currency purchases by the Ministry of Finance to reduce the ruble's volatility. However, analysts have differing opinions on this move, some seeing it as an overly gentle measure to support the weakened ruble, while others consider it an excessive intervention that could quickly bolster the ruble's value.

The main issue currently faced by Russia continues to be the ongoing conflict with Ukraine, which shows no signs of resolution. This situation necessitates increased state spending on the military and unavoidably leads to a potential budget deficit of significant proportions, affecting economic support within the country.

The budget deficit is largely a result of excessive military expenditures. The country's imports of goods and services have also been impacted by the weakening ruble. Additionally, the oil exports, a major revenue source for Russia, have been negatively affected by the downturn in oil prices. This has forced the nation to buy oil from other sources.

The aggressive interest rate hikes in recent times have unquestionably impacted the economy. Companies that rely on loans have faced the combined effects of rising interest rates and increased inflation, leading to higher costs. These increased costs have been passed on to consumer prices. This, in turn, affects the general population, as salaries have not been adjusted in line with the consistently rising prices. This phenomenon has led to an increase in consumer debt. Coupled with severe labor shortages, these factors have contributed to the rising inflation rates this year.

Techical analysis data (5H)

Resistance: 99.2576, 100.6260, 102.6729

Support: 95.8423, 93.7954, 92.4270

Source: Investing.com