Russia: The Crisis of Ruble Devaluation Has Ended

Anton Siluanov, the Russian Minister of Finance, announced on Thursday, December 25, that the country has overcome the crisis of its national currency devaluation. According to Reuters, this government official stated in a session of the Federation Council of the Russian Parliament that the increase in interest rates was aimed at stabilizing the situation in the currency market. Mr. Siluanov added, "In our opinion, the currency crisis has been overcome and the ruble is currently strengthening." These statements come at a time when media reports indicate a decrease in Russia's foreign reserves, marking the worst economic crisis in Russia since 1998. The sharp drop in oil prices, which form the backbone of the Russian economy, and Western sanctions against the country due to the Ukraine crisis, which have made it nearly impossible for Russian companies to borrow from Western markets, have led to a severe decline in the value of the ruble against the dollar. Last week, the ruble hit its lowest value. However, in recent days, following some measures by Russian officials, including raising the interest rate from 10.5% to 17% and imposing restrictions on grain exports and controlling informal capital, the ruble's price has increased again. Siluanov also noted that if the stable situation in the currency market continues, interest rates will be reduced again. Standard & Poor's credit rating agency warned this week about a downgrade of Russia's credit rating by January due to the rapid deterioration of the country's monetary flexibility. In an effort to prevent a downgrade of Russia's credit rating, officials have contacted financial rating organizations to explain the government's actions. Since mid-December, the ruble's value against other major currencies has reached its highest decline. The dollar rate increased from 30-35 rubles in the first half of 2014 to 80 rubles. In recent days, the decline in the value of the ruble has stopped, and today one US dollar was traded at 52 rubles. The government's pressure on exporters to sell currency has also been effective in reviving the ruble's value. Last week, Russia's gold and foreign currency reserves decreased by $15.7 billion for the first time since August 2009, falling below $400 billion. These reserves were equivalent to $510 billion at the beginning of the year. Many consumer goods in Russia are supplied through imports, and therefore the ruble's devaluation has led to increased inflation. Andrey Belousov, an economic advisor to President Vladimir Putin, announced today that the inflation rate in Russia has reached double digits for the first time since the 2008 global economic crisis, hitting 10.4% and may rise to 11% by the end of the month. Moody's credit rating agency warned this week that due to the drop in oil prices and the ruble's devaluation, Russia's economic growth may decline to -5.5% in 2015 and -3% in 2016. In this context, Russia's loss of $140 billion due to falling oil prices and Western sanctions represents the most severe ruble devaluation since 1998.