Ruble woes end but prices may rise
RUSSIA said its ruble crisis was over yesterday but warned inflation may go above 10 percent, adding to the woes facing President Vladimir Putin’s government as it fights its worst economic crisis since 1998.
The ruble plunged to all-time lows last week on heavy falls in the price of oil, the backbone of the Russian economy, and Western sanctions over the Ukraine crisis that made it near impossible for Russian firms to borrow on Western markets.
But it has since rebounded sharply after authorities took steps to halt its slide and bring down inflation, which after years of stability threatens Putin’s reputation for ensuring the country’s prosperity.
Those measures included a hike in interest rates to 17 percent from 10.5 percent, curbs on grain exports and informal capital controls.
“The key rate was raised in order to stabilize the situation on the currency market ... That period has already, in our opinion, passed. The ruble is now strengthening,” Finance Minister Anton Siluanov told the upper house of parliament yesterday.
He added that interest rates would be lowered if the situation remained stable.
Standard & Poor’s credit ratings agency said this week that it could downgrade Russia to junk as soon as January due to a rapid deterioration in “monetary flexibility.”
Keen to avert a downgrade, Russia said it had started talks with ratings agencies to explain the government’s actions. Siluanov said the budget deficit next year would be “significantly” more than the 0.6 percent of gross domestic product originally planned.
The ruble slumped to 80 per US dollar in mid-December from an average of 30-35 in the first half of 2014. It has strengthened in the last few days to trade as strong as 52 per dollar yesterday, in part thanks to government pressure on exporters to sell hard currency.
Russia imports large amounts of food, high-tech equipment and cars. As the ruble weakens, it has to pay more for its imports, which pushes up inflation at home and in turn encourages people to protect their earnings by buying dollars, thereby adding to the pressure on the ruble.
Putin’s economic aide Andrei Belousov said yesterday that annual inflation could hit around 11 percent by the end of 2014 — beating the psychologically vital 10 percent mark for the first time since the 2008/09 global financial crisis.
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