jueves, 4 de diciembre de 2014

jueves, diciembre 04, 2014
Review & Outlook

The Ruble of Discontent

Russia’s falling currency could create political trouble for Vladimir Putin.

Dec. 1, 2014 7:22 p.m. ET
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      Russian President Vladimir Putin. Reuters        


Russia’s currency fell as much as 6% Monday before recovering to around 52 rubles per dollar—roughly a 40% depreciation since the start of the year. President seemingly for life Vladimir Putin faces a worsening ruble crisis that’s mostly of his own making.

Oil is the proximate cause for Monday’s plummet. OPEC’s decision to keep production at current levels has convinced most market participants that crude prices won’t soon be rising. The realization hit a range of currencies linked to oil, including the ruble. U.S. and EU financial sanctions also continue to bite, causing an evaporation of dollar and euro liquidity within Russia that exacerbates oil-induced currency falls.

What’s notable now, however, is that the ruble suffered such a steep decline despite Moscow’s earlier attempts to arrest its fall. The central bank last month surprised markets with a 1.5 percentage-point interest-rate hike, bringing the policy rate to 9.5%. That was supposed to restore confidence in the currency. A concurrent plan to freely float the ruble was meant to discourage traders from betting against what had become constant central-bank interventions. Monday’s events show how weak those efforts were.

In a narrow sense, exchange-rate weakness helps the Kremlin. A depreciating ruble allows Russia to collect more rubles when it converts its dollar-denominated petro-earnings into local currency.

But that benefit is offset by the damage to the private economy. Russian banks hold around $192 billion in foreign liabilities, equal to 10% of GDP, which becomes more expensive to service the further the ruble slides. Another concern is that a further currency slide will stimulate capital outflows that already are expected to hit $110 billion for the year. Russians are forced to pay more rubles for imports, including for basic consumer goods, so rising prices could also create political problems for Mr. Putin.

The Kremlin’s responses could also be harmful. The central bank, which appears to have dipped back into forex intervention Monday after nearly a month of restraint, may now be forced to raise interest rates again to shore up confidence. Whatever effect that has on the exchange rate, it will be damaging for a Russian economy already feeling the slow-growth effects of the Kremlin’s statism, corruption and hostility to independent private businesses, both foreign and domestic.

The Russian economy still has a foreign-exchange cushion, and Mr. Putin may attempt to shore up his popularity with more military adventures. But Moscow’s struggle to respond to the falling ruble punctures the myth of the invincible strongman immune to pressure. That’s a political opportunity that the West and Russia’s democrats should seize.
 

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