Russian rubble has lost more than 69% value against dollar in last few months. Few months back in September 2014, it was trading at $0.026/dollar, but in less than 4 months its value fell to $0.018/dollar. Russian economists, consumers and politicians all are really worried about the state of the currency and also the economy, as all their expectations about the oil prices and Russian economy proved wrong. Now inflation is increasing at very fast rate, rubble value is falling and interest rates are increasing. Situation is really getting worse, which is clearly evident from the statement of the ex Russian minister kudrin, who said that “Russia entered a full fledged crisis”.
Dollar vs Ruble Chart
What are the causes?
- Russian economy is heavily dependent on its oil sector. According to the latest figures country earns more than 64 % of its foreign exchange revenue from oil exports. So this means that nose dive in the oil price will literally murder its economy.
- Russian economy was already in doldrums due to very severe economic sanctions by European economies. These sanctions restricted Russian banks from getting easy finance from the European banks, which is very essential to support long term investment projects in the country. It was very smart move by the European countries to cripple Russian economy after the Ukraine crisis. So sudden fall in the oil prices severely damaged already crippling Russian economy and rubble.
- Foreign investors pulled their investments amounting $75 Billion from Russia, as investors were really confused about the Russian economy especially after the Ukraine crisis and economic sanctions by the European countries. This move severely damaged the Russian currency and economy.
What is the future?
Russian president Vladimir Putin recently addressed his nation and promised a bright economic future. He told his nation that $420 Billion foreign reserves are enough to keep the economy in good shape, but in reality signs are not so encouraging for the Russian economy. Economists are not so hopeful about the Russian economy, as rubble is falling, inflation is increasing and now USA – EU are planning to put Russia under more sanctions. Russia has to act very fast, as it has to pay $115 corporate debt in 2015, which will increase problems for the country.
Russia has one or two very good options to bounce back next year. Firstly, it can accept the Chinese offer of currency swap to make an economic recovery. Lastly, it can also increase its prices of the gas supplied to the European countries in winter to support its economy.