Capital flees Russia – the ruble falls

Russia's ruble has sunk to new lows this year under the weight of international sanctions.

The Russian ruble has hit a series of fresh record lows in the past few days. The US dollar now buys more than 40 rubles marking a fall of almost a fifth since the start of the year. Only the Argentinian peso has done worse against the dollar in 2014.

The ruble is also around 45 to its euro-dollar basket, the main gauge used by the Russian central bank, which allows the currency to move in a trading band. The central bank has spent almost $2bn on buying rubles to try to temper the decline in the past few days, the heaviest intervention since March.

What the commentators said

Russia's economic problems "appeared long before the annexation of Crimea", said The Economist. The growth model of recent years was to funnel profits from oil and gas sales into the consumer economy. But that had "petered out",and Russia badly needed "innovationand investment" to move up a gear.Now, thanks to sanctions and the falling oil price, the economy is on the slide.

As political tension and the poor backdrop prompt capital to flee the country, the currency falls, fuelling inflation, which is already uncomfortably high at 8%. Moscow's ban on importing food from states that imposed sanctions hasn't helped, as it has cut food supplies, said Andrey Ostroukh in The Wall Street Journal.

To stem the exodus of foreign money, and squeeze out inflation, the central bank has had to raise interest rates three times this year, and another hike is expected soon. That has further undermined growth.

The sanctions have slashed Russian firms' access to the capital markets, which raises the prospect of a corporate credit crunch, added Kathrin Hille in the Financial Times.

They have enough liquidity to meet their 2015 debt obligations, according to credit-rating agency Moody's, but 2016 and 2017 will be a problem if they don't regain international markets. Meanwhile, they have to repay $134bn of external debt between now and the end of 2015, which will see more money leave Russia.

Meanwhile, the price of oil has fallen well below the average level factored into Russia's 2014 budget.

In short, said The Economist, Russia risks a "cycle of low or zero growth, high inflation, and ruble devaluation". With national security providing a pretext for more state interference in the economy, a sustainable recovery is further away than ever.

Recommended

Emerging markets fall behind their developed-world counterparts
Emerging markets

Emerging markets fall behind their developed-world counterparts

While developed-world markets look forward to a recovery, emerging market stocks have tumbled as foreign investors pull out cash.
16 Apr 2021
Four of the best investment trusts for investing in emerging markets
Investment trusts

Four of the best investment trusts for investing in emerging markets

Investors need to tread very carefully in this risky sector. Here are the best ways to approach it
22 Mar 2021
Storm brews in emerging markets as investors pull cash out
Emerging markets

Storm brews in emerging markets as investors pull cash out

Foreign investors have begun to pull cash out of emerging markets as they begin to look less attractive when compared to the rising return from holdin…
12 Mar 2021
I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Lab-grown meat: how “moo’s law” will drive innovation
Soft commodities

Lab-grown meat: how “moo’s law” will drive innovation

Jim Mellon and Anthony Chow, co-founders of Aim-listed Agronomics, explain why they believe that “cellular agriculture” will benefit from massive long…
16 Apr 2021