This page has been archived and commenting is disabled.
Russia Central Banks Scrambles To Halt Plunging Ruble, Spends Over $2 Billion In Last Three Days As Inflation Soars
Recently, not a day passes without the Russian Ruble hitting new record lows against the US Dollar due to a combination of both capital outflows from Russia, tumbling prices of crude - Moscow's most important export - which deteriorates Russia trade and current account position, coupled with the most acute USD strengthening in history in the past few months over fears of a tightening Fed.
Yet for whatever the reason, after stoically ignoring the impact of its tumbling currency on the domestic economy (and as a reminder, Japan would kill for a currency collapse of this magnitude: just think of the "economic renaissance" that would result if only Abenomics was right about killing your currency leading to growth... which it isn't), the Kremlin is finally starting to feel the pinch leading to the biggest central bank intervention in FX markets since the start of the Ukraine campaign, buying Rubles for a third consecutive day at an amount of over $2 billion, with $1.75 billion purchased in the first two days of the current intervention attempt, and another $420 million in foreign currencies sold overnight according to Bank of Russia data.
Elvira Nabiullina, chairman of Russia's central bank, sits and listens
during the VTB Capital Investment Forum "Russia Calling" in
Moscow, Russia, on Oct. 2, 2014
Bloomberg adds that the bank also said it shifted the upper boundary of the currency’s trading band by 5 kopeks yesterday, a move that may have taken its spending to $2 billion in the past three trading days. The exchange rate was little changed at 44.7546 versus the dollar- euro basket as of 12:01 p.m. in Moscow today.
The currency sales underscore the price President Vladimir Putin is paying for his country’s annexation of Crimea and alleged support for rebels in eastern Ukraine. The U.S. and Europe have imposed sanctions on Russian individuals and companies that have curbed access to overseas financing and fueled an exodus of foreign capital just as a drop in the price of crude oil saps export revenue.
“The declining oil price and local demand for foreign currency force the central bank to intervene and move the band,” Dmitry Polevoy, the chief economist for Russia at ING Groep NV in Moscow, said in an e-mailed note. “Only the tax period can alleviate this tension.”
The Bank of Russia will probably need to spend as much as $30 billion by year-end to slow the decline in the ruble, which lost 14 percent against the dollar last quarter, according to UralSib Capital. Crude oil, which brings Russia half of its state budget revenue along with natural gas, fell 1.5 percent to $90.76 per barrel in London, the lowest in more than two years.
The net impact of all this intervention has been a 10% decline in Russia's FX reserves, which have fallen by the equivalent of $55 billion in 2014 to a four-year low of $456.8 billion last week, poised for the biggest annual decrease since 2008, when the cash pile slid $160 billion from an August peak through year-end amid central bank efforts to stem the ruble’s drop.
It is likely that USD demand will increase in the coming months, putting more pressure on the Bank of Russia: as Russian companies contend with $54.7 billion of debt repayments in the next three months, according to central bank data. Local tax payments in the second half of the month can support the ruble as exporters convert their foreign-currency revenue.
Meanwhile, as much as Russia wants to telegraph that western sanctions are not hurting it nearly as much as they are Europe (where the recent escalation in political hostilities between West and East has undoubtedly accelerated Europe's tumble into a triple-dip recession), the reality is that they are. A quick example from BBG:
There are many ways to measure the deepening financial crisis spreading across Russia. The ruble is sinking more than any other currency in the world, foreign reserves have plunged to a four-year low and the economy is teetering toward recession.
Galina Mityaeva measures it in centimeters.
The half stick of braunschweiger sausage that the 69-year-old retiree used to buy for her husband each week is now just too expensive. Cut it a little shorter, she instructs the deli counter clerks at the supermarket she shops at outside of Moscow -- a quarter stick will have to suffice.
“Every time I go to the store, food is more expensive,” Mityaeva said as she strolled through the grocery aisles on a recent afternoon. “People are angry right now. In the store lines, you can hear people complaining: ‘What can I afford to buy with 1,000 rubles?’”
Seven months after President Vladimir Putin initiated his foray into Ukraine, triggering international sanctions against Russia and the capital flight that has fueled the ruble’s plunge, consumers across Moscow are feeling the squeeze. Annual inflation soared to a three-year high of 8 percent last month, led by a 17 percent surge in prices on meat and poultry, 28 percent on tobacco and 13 percent on international airfare and travel-related services.
The plunging Ruble is impacting increasingly more ordinary people:
Natalya Lomteva scoffs at the idea of taking a trip abroad, which she calls “impossible to afford.” A 20-year-old college student, she’s more focused on scrimping together the money to fund her pack-a-day smoking habit and finding restaurants that she can still afford. With temperatures dropping as winter approaches, an inexpensive place to gather with friends indoors takes on added value, she said.
“During the summer, we could at least hang out at parks,” Lomteva said while nursing a cup of tea at a coffee house that she called a “cheap option” in the northwest Moscow district of Shchukino. She said that one of her favorite haunts, Beverly Hills Diner, has become too expensive after rising food costs pushed up prices on a menu dominated by hamburgers and other American-style fare.
And yet, the irony is that despite the people's hardships, Putin's popularity is still the highest it has ever been: "His approval rating rose to 86 percent in September from 65 percent in January, according to pollster Levada Center, which surveyed 1,600 people across Russia over four days."
One wonders if this is due to Russia's innate (and historically proven) ability to handle misfortune far better than the west, or simply people are happy to suffer out of spite if it means that their adversaries will suffer even more. For now, this angle is working, because a recession in Europe should more than offset a recession in Russian, if only through the prism of nationalist pride. Additionally, Russia's key opponent, Ukraine, is not doing any better as shown by these two headlines that just hit the tape:
- UKRAINE DEP FINANCE MINISTER MYARKOVSKIY FIRED, IFX SAYS
- UKRAINE ACTING ECONOMY MINISTER MAKSYUTA FIRED; IFX SAYS
And yet one wonders how much longer Russia can sustain this: the best confirmation that things may be spiraling out of control for the Kremlin comes from Russia's finance minister who said on Tuesday the country could no longer afford a multi-billion-dollar revamp of the armed forces approved by President Vladimir Putin, stepping up a campaign to trim spending as sanctions over the Ukraine crisis bite.
Anton Siluanov said a new defense program should be drawn up to take into account the changed economic situation, even though the deputy prime minister in charge of the sector has been ruling out any cuts in military spending. "A new defense program will be prepared now, and in its framework we want to reconsider the amount of resources that will be spent from the budget in order to make it more realistic," said Siluanov, appointed three years ago after his veteran predecessor, Alexei Kudrin, quit in protest over the proposed military spending.
Siluanov's comments highlight a battle among different factions of the government over defense spending which has heated up in recent months, and which will ultimately be resolved by Putin himself.
They could indicate the president is preparing the way to postpone or trim some defense spending, foreseen at 23 trillion roubles ($576 billion) in the decade to 2020 under his original plan to upgrade 70 percent of military equipment by then.
"Since all such final decisions are made in the Kremlin, the decision about fine-tuning of the program will be made in the Kremlin and opponents of the finance ministry's proposals to adjust it will have to obey," said Ivan Konovalov, head of the Moscow-based Center for Strategic Trends Studies.
In other words, the sanctions foreplay of the past year is finally coming to a head, and very soon one party or the other, either Europe or the Kremlin will have to cry uncle. That event, and what follows immediately after, should be the most interesting development of the next 3-6 months.
And even then, a worst case outcome for Putin, one that involves a currency crisis, may be a blessing in disguise, because at the end of the day Russia still has what everyone needs: energy. The only question is how it is denominated. And if anything, this ongoing capital account crisis, will merely force the Kremlin to accelerate its shift away from the Petrodollar to the Gas-o-Yuan (as dubbed here first), as Russia has been hinting for a year it would do regardless. Perhaps a little incentive to pull the bandaid is just what Moscow needs...
»
- 16464 reads
- Printer-friendly version
- Send to friend
- advertisements -
Well, theorethically a weaker Ruble should make Russian exports to soar. Putin should be happy :)
http://www.myaviation.net/search/photo_search.php?id=01086305
Nope... no one wants their cars or airplanes
Excuse me for being a persistent ass... a reminder from Edgar Casey this is from 1938 ...
"In Russia there comes the hope of the world, not as that sometimes termed of the Communistic, of the bolshevistic; no. but freedom, freedom! That each man will live for his fellow man! The principle has been born. It will take years for it to be crystallized, but out of Russia comes again the hope of the world. Guided by what? That friendship with the nation that hath even set on its present monetary unit “In God We Trust.” (3976-29)
it looks like it is coming down to that...
Like most people in the world, Russians are slightly schizophrenic with regard to their government.
But in Russia the cognitive dissonance relates to the currency. Everyone loudly 'LOVES' the government. No one wants to be attacked for not loving the government with enough enthusiasm. At the same time every adult Russian remembers a Ruble default. Older Russians remember multiple Ruble defaults.
The result is that Putin's policies are popular as long as they don't have to trust their savings to them... Everyone takes pains to get, and hide, personal foreign reserves. This is a popular preference to be away from the Ruble.
IMHO the sanctions themselves aren't what is hurting Russia directly. It was Putin's threats to seize foreign assets. So those who had 'foreign' assets... many of whom are Russian by the way... then take their money elsewhere so that it is harder for the government to seize.
Shortly, this leads to a mass of foreigners and Russians who want to sell Rubles in order to have other things. Like with protectionist policies, government people believe that the power of the gun can enhance the power of the economy....except it can't.
But they LOVE PUTIN!!! (as long as he isn't stealing from them via Ruble Policy, or foreign asset seizure policy.)
you positively astonish me with your thoughful comment
not that schizofrenic. Russians love Mother Russia, the Rodina. They currently respect Father Putin
But in my experience, they always hated and even more distrusted government, even when they had to say they loved that statist excess wrapped in communist propaganda they had for over 70 years
and this was even true when before the revolution, people used to say to each other that "if only the Tsar would know", followed by "then everything would be much better"
love your mother, respect your father, hate and distrust their damn thieving and sometimes brutal civil servant
Reading all the pro-Russian fairy tales churned out by the ZH Okhrana, one is certainly struck by the image of what a wonderful, happy place the CCCP v 2.0 actually is in comparison to that nasty old den of Uncle Sam's and the crib of his cackling crew of cronies and pilot fish over on the Left Coast of Europe.
The only problem I see with their soaring vision of this Eurasian Volkenkuckucksheim is that the people who are truly "in the know" about what is happening in Russia are busily evacuating their money through every leaky orifice available, which accounts for this article's point about the collapsing rubble.
All those hot Russian babes these guys drool over? They want to marry you and come to America, right? Not have you marry them and emigrate to Holy Mother Russia, where everything is just peachy and covered in chocolate sauce and whipped cream so far as the Okhrana would like for you to believe.
Russia is really just a Third World extraction colony with an oversized military and a standard-issue strongman in sunglasses. Plus it's COLD and they use this retarded alphabet. But I hope you all get your wish to live there some day and enjoy the benefits of life under Puta.
ramble on....
I don't think you'll find as many homeless people in Moscow compared to LA or NY.
If you research the hot Russian babe market closely, you'll find out that a hot babe doesn't want to marry an obese American guy as much as it was only 10 years ago. A rich, young and athletic guy, yes!
You don't they are frozen solid to the sidewalk every winter night and are scrapped up in the morning.
I thought Russia and China had trillions upon trillions of dollars in foreign exchange reserves and if they wished to unleash them it would be the end of the dollar.
so what's the fuss about a few billions to prop up the ruble ?
CHina and Japan does, Russia, according to the article has another 450 billion to use on buying back their currency, which is a nice way to get rid of one's unwanted foreign currency in an illiquid market. THis way, they buy back their own stuff on the cheap, like how our own Fed keeps rates down to keep refinance costs on the fed debt low. Same pattern, only theirs makes their currency stronger, as our policy makes our currency weaker. Same pattern on the global scene, but then Mother Nature is set to arrive soon enough to wrap up this show.
Russia is that awesome. lol
I have to do it...
If you like your Rouble, you can keep your Rouble.
And
Gold surges against Rouble.