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Russia Defends Ruble With Biggest Rate Rise Since 1998

OWoN: Putin won't play their games, so they jerk his currency.

He will survive and they will dig in ever deeper. More will join BRICS, they will launch a new Gold backed currency and the US will then face real issues.

Russia Defends Ruble With Biggest Rate Rise Since 1998

By Olga Tanas
and Anna Andrianova
16 December 2014

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.

“This move symbolizes the surrender of economic growth for the sake of preserving the financial system,” said Ian Hague, founding partner at New York-based Firebird Management LLC, which oversees about $1.1 billion, including Russian stocks. “It’s the right move to make, and it wasn’t easy to make it.”

‘Ruble Zone’

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.

Emergency Gathering

The Russian central bank announced the increase -- the sixth this year -- after policy makers gathered for an unscheduled meeting.

“This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks,” the central bank said in the statement. President Vladimir Putin, whose annexation of Ukraine’s Crimean peninsula in March prompted the U.S. and its allies to strike back with sanctions, this month called for “harsh” measures to deter currency speculators.

“While such drastic tightening measures will inflict more pain on the economy, we have been arguing for a while that it is not about preventing recession, but full-scale financial turmoil caused by the precipitous ruble fall,” said Piotr Matys, a currency strategist at Rabobank International in London.

Brent, the grade of oil traders look at for pricing Russia’s main export blend, lost as much as 3.3 percent to $59.02 on the London-based ICE Futures Europe exchange, trading below $60 a barrel for the first time since July 2009.

Losing Steam

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.

Others were more optimistic, saying the action was big enough to arrest the ruble’s record decline. “The central bank is trying to stop the avalanche, and such a massive hike may be sufficient,” said Slava Breusov, an analyst at Alliance Bernstein in New York. “No one seems to be thinking what it will do to the economy, as the priority is to stop the ruble plunge.”


1 comment :

  1. Putin Orders Feared “Samson Defense” To Collapse US-EU Economies

    A chilling report published today by the Ministry of Economic Development (MED) is warning of potentially “catastrophic unknown consequences” relating to President Putin’s issuance to the Central Bank of Russia (CBR) of orders to initiate what is commonly known within the Kremlin as the “Samson Defense” designed to crash the Russian ruble, while at the same time insuring the economic collapse of both the United States and European Union.

    The CBR’s “Samson Defense” is a Russian monetary strategy designed to economically mirror Israel’s feared “Samson Option” deterrence strategy of massive retaliation with nuclear weapons as a “last resort” if military attacks threaten its existence.

    In Putin’s action against the US-EU, this report says, the CBR’s stunning move earlier today in raising the interest rate to 17% from 10.5% has had its desired consequence as the ruble plunged more than 20% and to date and has now lost about 57% of its value versus the US dollar since the start of the year, which exceeds the 36% plunge related to the 2008 global economic crisis.

    Most importantly to note about this currency plunge, however, this report notes, are that Russia’s fiscal domestic accounts are denominated in depreciating rubles and its oil exports are invoiced in an appreciating US dollar, meaning that the fiscal blow from lower oil prices will be cushioned by a weak ruble, and was a strategy that Putin warned about earlier when he stated that the Federation was braced for a “catastrophic” slump in oil prices.

    As to how catastrophically low oil prices can fall, this report continues, it notes that OPEC has already stated that they are willing to push prices as low as $40 a barrel in their bid to take on Russia and US shale, a stance which began this past September when the Obama regime reached a secret deal with Saudi Arabia in order to flood the world with oil to collapse the Russian economy, but which has now backfired on them as the Saudis seek to bankrupt US shale producers too. (more)
    This same story is published by Zerohedge also.

    This appears to be a force move from the Petrodollar to Gold back currencies; with the IMF 2010 reforms being outstanding and UsA ignoring the plight, this was the best move to move majority trading partners within BRICS with 42% of all the wealth into the gold system...

    Reminds me of one of the James Bond movies...Gold Finger...


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