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Ruble swings against dollar, putting pressure on Russia's Putin Ruble swings against dollar, putting pressure on Russia's Putin
(about 3 hours later)
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. MOSCOW — Russian authorities took strong action to stabilize the country’s currency on Wednesday, a day after the worst swings since Russia’s 1998 financial wipeout threatened the stability that has been the backbone of President Vladimir Putin’s 15 years in power.
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. Officials said they were fighting a “bacchanalia” that led the ruble to lose 17 percent against the U.S. dollar in the first two days of this week. The rapid evaporation of the value of Russians’ savings brought to mind bad memories of Russia’s default. Putin took office in the aftermath and solidified his control of the nation with the promise that it would never happen again.
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. Russian newspapers warned Wednesday 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.
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. But the ruble itself was more stable Wednesday after some gyrations when the market opened, gaining 3 percent against the dollar in afternoon trading and making up much of what it lost Tuesday. Analysts said the market bore heavy signs of government intervention to stabilize the ruble.
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. “The government and central bank have begun working seriously on stopping this bacchanalia on the currency market,” Putin aide Andrei Belousov told Russian news agencies after Prime Minister Dmitry Medvedev convened an emergency meeting of top economic officials and the heads of major energy companies.
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. Putin himself has held back from commenting on the dimming economy this week, saving his thoughts for a Thursday end-of-year news conference.
The currency turbulence has upended 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.
The situation led car makers and others to suspend sales until they could decide how much 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.
Russia’s Finance Ministry also announced that it will join the Central Bank in selling off reserves of foreign currency to help prop up the ruble. Medvedev promised Wednesday that Russia would steer clear of making any “extremely harsh regulations” to bring the ruble rate to heel, and that the government’s moves would “be founded on market mechanisms.”
His press service later said that he had “instructed the heads of companies that the main task is to rhythmically and stably sell currency to avoid spikes in the ruble’s exchange rate” — a light policy intervention that suggested that the Russian government was increasingly willing to exert control over how private businesses handle their money.
“Everyone recognizes that the ruble is undervalued right now,” Medvedev said.
Some Russian lawmakers urged 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 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.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 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. 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 66 rubles to the dollar.
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. Tuesday’s sharp interest rate increase — 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.
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 simply have to get used to worsened living standards.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.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.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 billion this year. 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.
So far, Putin’s popularity remains near record highs. But pollsters warn that economic distress may challenge the high numbers.So far, Putin’s popularity remains near record highs. But pollsters warn that economic distress may challenge the high numbers.
“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.“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.
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. Retailers said some Russians were rushing to buy 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.
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.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.
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.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.
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.
Global stocks pointed lower Wednesday as oil prices continued to fall.Global stocks pointed lower Wednesday as oil prices continued to fall.
“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 with oil prices.In recent months, the ruble has shed value hand in hand with oil 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 central bank appeared to have printed currency to indirectly finance oil giant Rosneft, analysts said.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.
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.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 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.”“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 contributed to this story. Karoun Demirjian contributed to this report.