Russian Currency Crisis

[Kaitzilla]

Russia just hiked interest rates from 10% to 17% today!
They are trying to keep their currency the Ruble from going any lower.

http://www.bloomberg.com/news/2014-...nterest-rate-to-17-to-stem-ruble-decline.html

Russia took its biggest step yet to shore up the ruble and defuse the currency crisis threatening its stricken economy.

In a surprise announcement just before 1 a.m. in Moscow, the Russian central bank said it would raise its key interest rate to 17 percent from 10.5 percent, effective today. The move was the largest single increase since 1998, when Russian rates soared past 100 percent and the government defaulted on debt.

The ruble lost 2.5 percent to 66.0985 against the dollar as of 12:53 p.m., reversing an early gain prompted by the news.

The announcement, as well as its timing, underscored the financial straits in which Russia now finds itself. If sustained, the new higher rates would squeeze an economy that is already being hurt by sanctions led by the U.S. and European Union, and by a collapse in oil prices. Some analysts said they doubted the economy could withstand such high rates for long.

That sounds pretty bad!

The ruble, which has depreciated 50 percent this year against the dollar, is the worst performer among more than 170 currencies tracked by Bloomberg. It gained almost 11 percent today, before weakening to a record.

“In order to limit the negative effects of such depreciation of the national currency on the Russian economy, we decided to increase the key rate,” Russian central bank Governor Elvira Nabiullina said on state TV channel Rossiya 24. “We really must learn to live in the ruble zone, rely to a large extent on our own sources of financing.”

So far this year, Russia has spent $80 billion of its foreign-exchange reserves in an unsuccessful attempt to prop up the ruble, which tumbled past 66 against the dollar for the first time. The currency’s collapse has evoked the turmoil of the 1998 Russian crisis, an event that reverberated through financial markets around the world...


...Russia derives about 50 percent of its budget revenue from oil and natural gas taxes. As much as a quarter of gross domestic product is linked to the energy industry, Moody’s Investors Service estimated in a Dec. 9 report.

The economy may shrink 4.5 percent to 4.7 percent next year, the most since 2009, if oil averages $60 a barrel under a “stress scenario,” the central bank said yesterday. Net capital outflow may reach $134 billion this year, more than double last year’s total.

Man, Russia needs $100 oil as badly as Venezuela it seems.
Did the rate hike stop the currency plunge then?

http://www.washingtonpost.com/world...bb1610-4c9e-45bd-9297-475b0d3878cc_story.html

MOSCOW — Russia appeared headed Tuesday toward a full-fledged currency crisis after the central bank imposed a massive, middle-of-the-night interest rate hike but failed to halt the ruble’s plunge.

The tactics have revived memories of Russia’s 1998 financial meltdown, when the nation defaulted on debts and hyperinflation wiped out a generation’s savings.

Russia has more crisis-fighting resources today, but the central bank decision also carried perilous risks for the broader economy.


So far this year, the ruble has lost more than half its value against the U.S. dollar, a decline closely linked to the falling price of oil — Russia’s main export — and Western sanctions imposed because of Russia’s actions in the Ukraine conflict.

By midday Tuesday, the ruble slid more than 8 percent on top of a Monday swoon of more than 10 percent. The continued decline was a sign that investors were rejecting the central bank’s intervention.

Not working so far.
How big of a problem is this?
Are European banks invested in Russia doing ok?

 

[warpus]

One thing it does is it makes Putin stronger at home, since he's just blaming this on the west (I bet). But it makes the lives of ordinary Russians worse. A lot worse.

 

[Joecoolyo]

Will this impact Russian operations in Ukraine at all?

 

[LamaGT]

Will this impact Russian operations in Ukraine at all?

Russia could accept at this point a compromise where the two republics get to live with some sort of autonomy, some sort of recognition of Crimea and lifting of some sanctions. However this seems to be unacceptable to the US which is currently in a position of power.

An outright capitulation is impossible however, and further sanctions or artificial oil depreciation won't change anything. Russians are quite resilient and I doubt this will generate catastrophic problems on the scale of a Russian Maidan.

 

[Commodore]

Allow me to don my conspiracy theorist hat for a moment and make a suggestion: Could the falling prices of oil be part of a plan to economically destroy Russia so as to counter their expansionist tendencies without direct military confrontation? I mean, it seems like oil prices really didn't start to dramatically fall until this whole Ukraine crisis kicked off and falling oil prices have been the number one factor in the current downward spiral of the Russian economy.

 

[Tahuti]

Allow me to don my conspiracy theorist hat for a moment and make a suggestion: Could the falling prices of oil be part of a plan to economically destroy Russia so as to counter their expansionist tendencies without direct military confrontation? I mean, it seems like oil prices really didn't start to dramatically fall until this whole Ukraine crisis kicked off and falling oil prices have been the number one factor in the current downward spiral of the Russian economy.

That's pretty much correct. It's hardly something that is hidden from plain sight if you look closely. Russia is becoming to the EU and US what Israel has been to the Arab world since its inception: A pariah to blame all your problems on and spend gazillions in astroturfing campaigns to the point that even guillable academics start to believe opportunists are in fact idealists.

 

[warpus]

Uhhh actually OPEC is keeping prices low because they're trying to put shale operations out of business. One of their ministers has confirmed this.

"Opec have made clear that they are willing to push prices as low as $40 a barrel in their bid to take on Russia and US shale, a high-profile Gulf oil minister said this week."

I will find a source if you want. OPEC does not take orders from washington, or anywhere else in the west. They look after their interests first and foremost.

 

[ParkCungHee]

Meanwhile, I'm wondering how the same global elite that have spent so long telling us that we're one big interdependent economy can think the possibility of a currency collapse is something to seek out.

I expect if the Russian government doesn't reign this in, and the sanctions actually have their desired effect, there will be negative effects around the globe.

 

[Commodore]

Uhhh actually OPEC is keeping prices low because they're trying to put shale operations out of business. One of their ministers has confirmed this.

"Opec have made clear that they are willing to push prices as low as $40 a barrel in their bid to take on Russia and US shale, a high-profile Gulf oil minister said this week."

I will find a source if you want. OPEC does not take orders from washington, or anywhere else in the west. They look after their interests first and foremost.

Still wearing conspiracy theorist hat: What if that's just the cover story for the real plan though?

And OPEC going along with this conspiracy wouldn't mean they are taking orders from the West, just that they agree with the West that it is in everyone's best interest to keep Russia contained.

 

[Tahuti]

Meanwhile, I'm wondering how the same global elite that have spent so long telling us that we're one big interdependent economy can think the possibility of a currency collapse is something to seek out.

I expect if the Russian government doesn't reign this in, and the sanctions actually have their desired effect, there will be negative effects around the globe.

On the other hand, economic sanctions may have the side effect of making the Russian economy more self-sufficient. This certainly wouldn't be the first time sanctions backfired; see for instance, the Continental System imposed on Britain.

 

[LamaGT]

Uhhh actually OPEC is keeping prices low because they're trying to put shale operations out of business. One of their ministers has confirmed this.

"Opec have made clear that they are willing to push prices as low as $40 a barrel in their bid to take on Russia and US shale, a high-profile Gulf oil minister said this week."

I will find a source if you want. OPEC does not take orders from washington, or anywhere else in the west. They look after their interests first and foremost.

OPEC doing what it does affects some more than others, let's just say that. The timing is rather impeccable, that's for sure.

 

[Mechanicalsalvation]

Aeroflots tickets are surely cheap right now. Almost too cheap...

 

[Flying Pig]

Uhhh actually OPEC is keeping prices low because they're trying to put shale operations out of business. One of their ministers has confirmed this.

"Opec have made clear that they are willing to push prices as low as $40 a barrel in their bid to take on Russia and US shale, a high-profile Gulf oil minister said this week."

I will find a source if you want. OPEC does not take orders from washington, or anywhere else in the west. They look after their interests first and foremost.

It's predatory pricing - the idea is that they sell below cost so that everyone on the market has to do so, so simply existing cuts into a company's reserves. The idea is that small companies don't have enough reserves to do this for a long period of time, so they'll go bust and then the large companies can raise prices again. It can only be temporary in this case, though. It costs massively less to start a small shale operation than it does to start an oil one, and that cost is only going down as the technology improves. Being located in the US also gives it a massive boost. As shale becomes cheaper to produce and normal oil becomes more expensive, it'll get to the point where the shale companies can afford to price indefinitely at a level which out-competes the conventional oil companies. Many of the the current crop will go out of business, but more will be back.

 

[ParkCungHee]

On the other hand, economic sanctions may have the side effect of making the Russian economy more self-sufficient. This certainly wouldn't be the first time sanctions backfired; see for instance, the Continental System imposed on Britain.

I doubt it. If we're talking about Hypothetical backfires, this may produce closer cooperation between the Eurozone and Russia.

The Euros don't like the Sanction regime already, and if the signs that it's working are economic chaos, they're likely to do whatever they can to stop the problems while they're in Russia.

 

[Algeroth]

OPEC doing what it does affects some more than others, let's just say that. The timing is rather impeccable, that's for sure.

Yeah, it tends to affect backwards nations that more dependent on high-priced oil exports to fill their budget.

Russia was caught in a crossfire, the nazifascist satanic freemanson elders of Sion orchestrated it becuase Venezuela and Nigeria. You are just bystender that the Powers don't care about, sorry.

 

[luiz]

Meanwhile, I'm wondering how the same global elite that have spent so long telling us that we're one big interdependent economy can think the possibility of a currency collapse is something to seek out.

I expect if the Russian government doesn't reign this in, and the sanctions actually have their desired effect, there will be negative effects around the globe.

The global elite does not want Russia to collapse at all. In fact the global elite rather likes Putin and is pissed at the sanctions.

 

[Tahuti]

I doubt it. If we're talking about Hypothetical backfires, this may produce closer cooperation between the Eurozone and Russia.

The Euros don't like the Sanction regime already, and if the signs that it's working are economic chaos, they're likely to do whatever they can to stop the problems while they're in Russia.

Reminds of how Berlusconi claimed he imagined Russia become a EU member. It might be a remote possibility, though the EU would have to be siginificantly downscaled in terms of scope and downgrade its cooperation with the US.

 

[red_elk]

One thing it does is it makes Putin stronger at home, since he's just blaming this on the west (I bet).

:facepalm:

 

[Paul in Saudi]

Someday soon someone on the Sunday talk shows will say sanctions, and Obama's police had no effect on the Russians. Remember the news from the last few weeks.

 

[Tahuti]

:facepalm:

Everyone in the thread, I'm sorry, it has just had to be here.