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Ruble swings against dollar, putting pressure on Russia's Putin Ruble swings against dollar, putting pressure on Russia's Putin
(35 minutes later)
MOSCOW — Russian authorities appeared to be taking drastic action to stabilize their currency on Wednesday, a day after the worst swings since their 1998 financial wipeout. MOSCOW — Russian authorities appeared to be taking drastic action to stabilize the country’s currency on Wednesday, a day after the worst swings since their 1998 financial wipeout.
The currency turbulence has upended President Vladimir Putin’s carefully constructed economic system, which for his 15 years in power has offered relative prosperity andstability to voters in exchange for a passive political scene. The currency turbulence has upended President Vladimir Putin’s carefully constructed economic system, which for his 15 years in power has offered relative prosperity and stability to voters in exchange for a passive political scene.
OnWednesday, the ruble was swinging widely in value, a sign of intervention from the Russian Central Bank or other state actors, analysts said. That came after losing 17 percent against the dollar on Monday and Tuesday. On Wednesday, the ruble was swinging widely in value, a sign of intervention from the Russian Central Bank or other state officials, analysts said. That came after the ruble lost 17 percent against the U.S. dollar on Monday and Tuesday.
The currency turbulence led car makers and others to suspend sales on Tuesday until they could decide what price to charge. As of Wednesday, Apple’s online store in Russia was still out of service. A day earlier, lucky customers at their physical stores in Moscow could buy iPhones and computers at steep discounts to prices in America. The currency turbulence led car makers and others to suspend sales until they could decide what price to charge. As of Wednesday, Apple’s online store in Russia was still out of service. A day earlier, lucky customers at their physical stores in Moscow could buy iPhones and computers at steep discounts.
Russian newspapers warned in editorials Wednesday that the country was steps away from a full-blown bank run. “The central bank has buried the ruble” was the headline on the front of Moscow’s Nezavisimaya Gazeta. Russian newspapers warned in editorials that the country was steps away from a full-blown bank run. “The central bank has buried the ruble” was the headline on the front of Moscow’s Nezavisimaya Gazeta.
Russia’s Finance Ministry also announced that it would join the Central Bank in selling off stocks of foreign currency to help prop up the ruble. The ministry said in a statement that it believed the ruble was now deeply undervalued. Russia’s Finance Ministry also announced that it would join the Central Bank in selling off reserves of foreign currency to help prop up the ruble. The ministry said in a statement that it believed the ruble was now deeply undervalued.
Some Russian lawmakers on Wednesday were urging their citizens to tough it out. Some Russian lawmakers urged citizens to tough it out.
“One should suppress emotions and not create panic,” said the head of Russia’s upper house of Parliament, Valentina Matvienko. The currency’s swings were like “bad weather that will pass,” she said.“One should suppress emotions and not create panic,” said the head of Russia’s upper house of Parliament, Valentina Matvienko. The currency’s swings were like “bad weather that will pass,” she said.
Although the ruble’s value was more stable on Wednesday than in previous days, the situation remained fragile, and many investors still seemed to have lost trust in the country’s basic institutions. In the dark of night early Tuesday, the Russian central bank imposed a steep interest rate hike to stem the currency losses — to little initial effect. Although the ruble’s value was more stable Wednesday than in previous days, the situation remained fragile, and many investors still seemed to have lost trust in the country’s basic institutions. Shortly after midnight Tuesday, the Russian central bank imposed a steep interest rate hike in attempts to stem the currency losses — to little initial effect.
At one point Tuesday, a dollar could buy 79 rubles, an extraordinary development for a currency that stood at 33 rubles to the dollar in January and held mostly steady for much of the year. By midday Wednesday, the currency stood at 69 rubles to the dollar, one ruble weaker than Tuesday’s market close, though it was swinging wildly between gains and losses. At one point Tuesday, a dollar could buy 79 rubles, an extraordinary level for a currency that stood at 33 rubles to the dollar in January and held mostly steady for much of the year. By midday Wednesday, the currency stood at 69 rubles to the dollar, though it was swinging wildly between gains and losses.
The crisis consumed the attention of Russia’s elite on Tuesday, with Putin keeping in close touch with other government leaders, Prime Minister Dmitry Medvedev convening an emergency meeting and the state run news station devoting almost wall-to-wall coverage to the fast-breaking developments. Some analysts wondered whether the Central Bank president or other senior leaders might soon be replaced. The crisis consumed the attention of Russia’s elite. Prime Minister Dmitry Medvedev convened an emergency meeting and the state-run news station devoting almost wall-to-wall coverage to the fast-breaking developments. Some analysts wondered whether the Central Bank president or other senior leaders might soon be replaced.
The sharp interest rate hike — from 10.5 percent to17 percent — promised to throw Russia’s economy into a deep recession next year, and it was a sign that Russian policymakers feel they have few options left to fight the crisis. The sharp interest rate hike — from 10.5 percent to 17 percent — promised to throw Russia’s economy into a deep recession next year, and it was a sign that Russian policymakers feel they have few options left to fight the crisis.
On Tuesday, top economic officials said, in effect, that Russians would simplyhave to get used to worsened living standards. Deputy Prime Minister Olga Golodets said poverty would “inevitably rise” because of inflation. Elvira Nabiullina, president of the Central Bank, said that “these new conditionsdemand a change in behavior,” one that involves “getting rid of expensiveimported goods” and replacing them with cheaper Russian ones. On Tuesday, top economic officials said, in effect, that Russians would simply have to get used to worsened living standards.
Deputy Prime Minister Olga Golodets said poverty would “inevitably rise” because of inflation. Elvira Nabiullina, president of the Central Bank, said that “these new conditions demand a change in behavior,” one that involves “getting rid of expensive imported goods” and replacing them with cheaper Russian ones.
Putin has not publicly addressed the crisis in recent days, but his spokesman said that much of an annual news conference set for Thursday will be devoted to the economy.Putin has not publicly addressed the crisis in recent days, but his spokesman said that much of an annual news conference set for Thursday will be devoted to the economy.
The central bank tactics have revived memories of Russia’s 1998 financial meltdown, when the nation defaulted on debts and hyper­inflation wiped out a generation’s savings. Buoyed by rising oil prices, Putin devoted much of his early years to building institutions that would preserve economic stability. As a result, Russia still has far more crisis-fighting resources today than it did then, including the world’s fourth-largest currency reserves. They stood at $416 billion at the beginning of the month, down $80 billionthis year. The central bank tactics have revived memories of Russia’s 1998 financial meltdown, when the nation defaulted on debts and hyper­inflation wiped out a generation’s savings. Buoyed by rising oil prices, Putin devoted much of his early years to building institutions that would preserve economic stability.
So far, Putin’s popularity remains near record highs. But pollsters warn that economic distress maychallenge the high numbers. As a result, Russia still has far more crisis-fighting resources today than it did then, including the world’s fourth-largest currency reserves. They stood at $416 billion at the beginning of the month, down $80 billion this year.
“If the economic troubles lasta long time, this will be a new situation that Putin’s regime has never been in,” said Denis Volkov at Moscow’s independent Levada polling agency. So far, Putin’s popularity remains near record highs. But pollsters warn that economic distress may challenge the high numbers.
Retailers said Tuesday thatsome Russians were rushing to purchase large-ticket items such as cars and appliances before they are marked up to new exchange rates. That sparked unpleasant memories from 1998, when consumers tried to convert their savings into purchases that would hold their value. But grocery stores appeared to be fully stocked. “If the economic troubles last a long time, this will be a new situation that Putin’s regime has never been in,” said Denis Volkov at Moscow’s independent Levada polling agency.
Russia’s economy was already in trouble before the Marchannexation of Ukraine’s Crimean Peninsula and subsequent support for pro-Russian rebels in eastern Ukraine. Those decisions sparkedWestern sanctions and the worst tensions between Russia and the West since the Cold War. The unpredictable environment has spooked investors, which the Central Bank predicts will pull$128 billion from Russia this year. Retailers said some Russians were rushing to purchase large-ticket items such as cars and appliances before they are marked up to new exchange rates. That sparked unpleasant memories from 1998, when consumers tried to convert their savings into purchases that would hold their value. But grocery stores appeared to be fully stocked.
The rapidly souring economic conditions may spur Russia to be more conciliatory on Ukraine. On Tuesday, Russian Foreign Minister Sergei Lavrov reversed a call for Kiev to cede more power to Ukraine’s regions, a basic Russian demand since pro-Moscow Ukrainian PresidentViktor Yanukovychwas toppled inFebruary. Russia’s economy was already in trouble before the March annexation of Ukraine’s Crimean Peninsula and subsequent support for pro-Russian rebels in eastern Ukraine. Those decisions sparked Western sanctions and the worst tensions between Russia and the West since the Cold War. The unpredictable environment has spooked investors, which the Central Bank predicts will pull$128 billion from Russia this year.
“This is for Ukrainians to decide,” Lavrov said in aninterviewwith France 24 television. “We’re not suggesting federalization, we’re not suggesting autonomy,” he said, although he and Putin have repeatedly proposed exactly that. A new cease-fire in Ukraine’s east that started last week appears to be mostly holding, although NATO and Ukraine say that Russia has reinforce dits positions in eastern Ukraine in recent weeks. Russia denies sending troops there. The rapidly souring economic conditions may spur Russia to be more conciliatory on Ukraine. On Tuesday, Russian Foreign Minister Sergei Lavrov reversed a call for Kiev to cede more power to Ukraine’s regions, a basic Russian demand since pro-Moscow Ukrainian President Viktor Yanukovych was toppled in February.
Secretary of State John F. Kerry praised the Russian moves on Tuesday, raising the prospect of an easing of sanctions. “There are signs of constructive ­choices,” Kerry told reporters in London, referring to the cease-fire.Secretary of State John F. Kerry praised the Russian moves on Tuesday, raising the prospect of an easing of sanctions. “There are signs of constructive ­choices,” Kerry told reporters in London, referring to the cease-fire.
The Russian government expects inflation to top 10 percent by the end of the year and the economy to fall into a recession next year, a dangerous combination. Tuesday’s rate hike — the largest since 1998 — was intended to cap inflation and encourage Russians to keep theirs avings in rubles instead of switching them to foreign currencies. Russia’s 1998 default helped spark a broader global crisis, hitting emerging economies. So far, fears that this crisis could spread appear muted, although neighbors such as Kazakhstan and Belarus also have experienced pressure.
Russia’s 1998 default helped spark a broader global crisis, hitting emerging economies. So far, fears that this crisis could spread appear muted, although neighbors such as Kazakhstan and Belarus also have experienced pressure. Asian stocks slid Tuesday, but mostly over Chinese manufacturing data. European markets were mixed, and U.S. markets closed lower as technology stocks declined. Russian companies are indebted to Western banks, but analysts said Tuesday that even a partial default would probably not on its own deal a grievous blow to the global system. Global stocks pointed lower Wednesday as oil prices continued to fall.
Instead, the panic in Russia raised questions about the country’s fundamental economic model, which isheavily dependent on energy revenue, analysts said.
“We have lost trust between business and the state. It’s systemic,” said Evgeny Gontmakher, a former economic adviser to Medvedev who works at the Institute of Contemporary Development, a liberal policy organization. “It could be a big turning point, not only for the economy but for Russia.”“We have lost trust between business and the state. It’s systemic,” said Evgeny Gontmakher, a former economic adviser to Medvedev who works at the Institute of Contemporary Development, a liberal policy organization. “It could be a big turning point, not only for the economy but for Russia.”
In recent months, the ruble has shed value hand in hand withoil prices. But the ruble sell-off that started Monday — a day in which oil prices were flat — was sparked by worries about a complicated, opaque transaction late last week in which the centralbank appeared to have printed currency to indirectly finance oil giant Rosneft, analysts said. Rosneft, majority-owned by the Russian state, has been stung by the sanctions and the falling energy prices­. Rosneft head Igor Sechin, a Putin confidant, denied Tuesday that anything untoward had occurred. In recent months, the ruble has shed value hand in hand with oil prices.
“In the last couple of days, oil has stayed completely stable and yet Russia had atotal panic,” said Sergei Guriev, an economist at the Sorbonne in Paris. “This panic is triggered by the realization that the Russian government has no idea what to do.” But the ruble sell-off that started Monday — a day in which oil prices were flat — was sparked by worries about a complicated, opaque transaction late last week in which the central bank appeared to have printed currency to indirectly finance oil giant Rosneft, analysts said.
Many Russians, although concerned about the economy, said Tuesday that they did not blame Putin for the problems. Rosneft, majority-owned by the Russian state, has been stung by the sanctions and the falling energy prices­. Rosneft head Igor Sechin, a Putin confidant, denied Tuesday that anything untoward had occurred.
“Everything is more expensive — the price of groceries, everything. Salaries aren’t growing, but everything else is rising,” Zhana Krivarogova, 55, said outside a central Moscow store.“Right now things are hard, but you know the Russian people — we’re used to it.” “In the last couple of days, oil has stayed completely stable and yet Russia had a total panic,” said Sergei Guriev, an economist at the Sorbonne in Paris. “This panic is triggered by the realization that the Russian government has no idea what to do.”
Karoun Demirjian contributedto this story. Karoun Demirjian contributed to this story.