Putin ease fears over Russia economy crisis

19 December 2014, 21:11
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Russian Ruble lost more ground against the dollar on Thursday before President Vlamidir Putin's end of year conference, expected to be dominated by what a government minister called a “perfect storm” hitting the economy.

Slide of Russian Ruble:

 

The Russian ruble collapsed to a record low 2 days back as the country's economic crisis deepened. Russia's economy was in trouble for several months and the value of ruble dropped as much as 19% in last 24 hours, this is the worst single day drop since 1998. Eventhough Russian government hiked its interest rate by 17% from 10.5% within a day, hoping that it would save the Russian economy stronger. But it doesn't work as government expected and the value of ruble still in free fall.

At one point, a dollar was worth nearly 80 rubles compared with around 30 rubles at the start of the year this reminds the Russia's 1998 financial crisis, when the currency collapsed and the currency was plunge to default on debt.


Reason Behind the rubles slide:

Russia's economy was hurt by two things: 1. The falling price of oil and 2. Western Sanction. Russia earns over half of its budget revenues from oil and gas imports and the sudden fall in crude oil price affected the economy. Earlier this year the price of oil was $110 per barrel and its pushed down to $60 per barrel.

The Russian economy was in trouble since annexation of Crimea from Ukraine and the came Western Sanction imposed by U.S and Europe, designed to punish Russian President Putin's action in Ukraine, this puts Russia in further trouble.

A weak ruble and a ban on Western food from U.S and Europe imports had kept inflation high.

 

Effects of ruble slide on investor:

Further decline in ruble value puts the investors in fear and all the investors are trying to sell their shares and taking back their money from accounts. As Russian currency crisis unfolds, Russians are scrambling to get their hands on US dollars.

Till now Russia's government central bank has transformed over $80 billion in Forex market intervention this year to defund the ruble value. By the end of 2015, Russia has to pay back $130 billion foreign debt.


What happening right now in Russia:

Right now all the Russian are trying to get as many dollars in the pocket, some are buying dollars and others are just trying to withdraw money from their account as dollars. “But one cannot buy dollars as like that, you need to pre order them” says the insider person of central Bank.

It looks like, no one is trusting the central bank of Russia anymore, they are trying to get everything out of it.

Popular companies like Apple stopped selling products i.e., i-pod, i-phone through online in Russia due to the further fluctuations in rubles value.


What says the Russian minister:

We are not scared about the continuous fall in oil price. This is not the first time Russia facing such crisis. This won't make us poor, this will make us come out even stronger. We are even seen worst situation than this in our history and every time we have got out to ourself fix much stronger” says the Lavrov( Foreign minister).


What says President Putin in news conference:

Russia President Putin seek to ease fears over Russian economy crisis, insisting the dramatic fall in ruble will stabilize and Russia 's economy will be stabilize in next 2 years. He is currently holding his annual end of year news conference.

Mr. Putin blamed “outside factors” for falling ruble value, which hit all time lower this week, but admitted Central bank could have acted sooner.

He insisted the Nations currency reserves were sufficient to keep the economy stable, saying the central bank should not “burn” its $419 billion reserves.

"I don't believe you can call its a crisis. You can call it what you like” he told on a packed conference hall. He also added our economy will get out of crisis: how long? May be within two years but after that, growth is inevitable”.

Ukraine Talks:

On Ukraine, President Putin said he was hopeful the conflict would be solve through peace talks. He urged the Ukraine government and pro-Russia rebels in the east of the country to conduct a quick “all for all” prisoner swap before Christmas.

Ukraine and most accuses Mr. Putin of sending Russian troops to fight with the rebels, but the Kremlin denies the allegation.

U.S President Barack Obama is expected to sign legislation later this week authorizing new economy sanction on Russia.

Later on Thursday, European leaders are also expected to approve further sanction against Russia with a ban on investment in Crimea and Oil & Gas exploration in the Black Sea likely targets.

The ruble has erased gains because the oil is falling” said Vadim Bit- Avragin,  money manager at Kapital Assest Manangement LLC in Moscow, said by phone.

Right now it is very hard to stop the panic since everyone is betting against ruble. The central bank was too late with its move. Without Oil and Economy stabilizing, The Ruble won't rise”.

What is the best case scenario for Russia right now:

President Putin should take steps to convince U.S and Europe to ease the sanction. That would probably be enough to keep the panic aside and also offers real economic benefits. To do that he have to dramatically pull back his activity in Ukraine Frankly.



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