Russian Ruble Has Fallen Nearly 50% Against USD This Year
The Russian Ruble fell about 12% earlier today as the foreign exchange (forex) markets opened. Today’s Ruble losses mean that the Russian Ruble has fallen nearly 50% against the USD in 2014. The Russian Ruble and the Russian economy have been suffering in light of Western sanctions and collapsing oil prices. Currently, there is a global oversupply of oil, largely due to the increase in American oil production. Elsewhere, the usual fount of oil in the Middle East have not abated their output; as a result, the world’s oil prices have fallen steadily.
Russian Central Bank Tried to Stymie the Decline
In an attempt to control the falling currency, Russia has increased interest rates for lending all the way to 10.5%. For comparison, the inflation rate in Russia has risen above 9% for the first time since 2011. The intended effects of Russia’s large market moves have largely been counteracted and overwhelmed by the simultaneously falling price of crude oil. Crude oil is one of Russia’ main exports, and with its declining global importance, the country’s economy sags ever more. Russian bank experts and researchers have warned that the entire country’s GDP may contract by up to 4.5% next year if crude oil prices were to remain at or below $60 a barrel. According to German research, the Russian government needs a $100 per barrel crude oil rate just to balance its budget.
A Free Floating/Falling Ruble
Just last month, Russia’s Central Bank announced that the Russian Ruble was going to become a truly free floating currency, with the cessation of previous unofficial linking between the Ruble and the USD or Euro. In November, the plan was to stop regular, automatic interventions in the Ruble foreign exchange market; instead, Russia planned to let its economy stand on its own two feet and only intervene in the case of emergency. Obviously, Russia’s Central Bank is in emergency mode now. Just last week, the Russian Central bank spent $4.53 billion USD to try and support the ruble in forex markets, to no avail. With the current slide in the Russian ruble’s price, the ruble may actually end the year down more points than the Ukrainian hryvnia, which suffered greatly as a result of Russian actions earlier this year.
According to Bloomberg, the Russian government has admitted that its overall economy is set to shrink by at least 0.8% in 2015 in the country’s first recession since 2009. Dmitry Dudkin, the head of fixed-income research at a Moscow Financial Corporation, said:
People start pricing a long period of low oil prices. And in these circumstances, Russia doesn’t look like a place where one should invest money, even without sanctions.