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Russian Ruble Sinks To New Lows

  • Tom Balmforth

MOSCOW -- Russia's national currency sank to new lows against the dollar and the euro despite the central bank dramatically raising a key interest rate overnight.

The ruble was trading at close to 80 rubles to the dollar and 100 to the euro in the afternoon of December 16 in Moscow, about a 20 percent decline. It later rallied a bit to about 72 to the dollar and 91 to the euro.

The ruble suffered a 10 percent decline on December 15, and the central bank hiked its key interest rate to 17 percent from 10.5 percent overnight.

Prime Minister Dmitry Medvedev held a special roundtable discussion on the financial situation. At that meeting, central-bank deputy head Sergei Shvetsov said the situation was "critical."

"What is happening now could not have been foreseen even in our worst nightmares one year ago," he said.

Russia's currency, which has been battered by low world energy prices and by Western sanctions imposed over Moscow's interference in Ukraine, has lost more than 50 percent of its value this year.

The head of Russia's central bank, Elvira Nabiullina, said on December 16 that the ruble was "undervalued" but that it "needs time to reach its fundamental rate."

She also said the "rather difficult situation" calls for "coordinated actions" by the government and the central bank. She said that bank should be involved in preparing tax and tariff policies in order to combat inflation.

Russians In Shock

Meanwhile, Muscovites expressed shock and panic as they emerged from Sberbank state bank on Moscow's central Tverskaya Street, where the rush to change rubles into hard currency had created 30-minute lines.

A cashier at an exchange point nearby told RFE/RL she had seen a "lot more people" than usual on December 16: "they are all buying" foreign currency. Reports circulated that some exchange points had been closed on December 16.

"Everyone is worrying and of course there is panic," said Olga, 30, an opera singer, who was withdrawing cash from Sberbank. "The biggest concern is what's going to happen with prices at shops and pharmacies. This is what's really worrying and causing a certain amount of fear because salaries aren't going to rise."

"Right now, the feeling of fear is reminiscent of the 1990s," said Olga, who declined to give her surname. "In 2008, when everything collapsed it was unexpected but there was the fact of the situation. This time, people have time to prepare, to decide what to do while [the rate] is gradually rising every day."

Taisia, 40, an accountant, said she was relieved she had converted her ruble savings into foreign currency before the Russian currency nosedived this week, but is alarmed by the sharp fluctuations. "Everyone's in shock. An hour ago it was 90 rubles to the euro. I don't even know where it's at now."

Others have tried to exchange rubles into hard currency, only to realize they had not picked their moment.

Ilya, 24, a fitness trainer, told RFE/RL: "I changed my money yesterday and then today I realized I should have done it today. I think in any case [the rate] will fall [back down]. Something's happening with our economy. Someone is leaning on it very hard."

Oil Continues Plunge

U.S. Secretary of State John Kerry said on December 16 in London that Washington was following the decline in the value of the Russian ruble, which he said had been affected both by Western sanctions against Russia and by falling world oil prices.

But Kerry said that the sanctions were not meant to hit ordinary Russians. "We do not want the people of Russia to be hurt here. This is not our goal," Kerry said.

Russian Deputy Prime Minister Dmitry Rogozin said on Twitter that Russia’s “vulnerability” was not due sanctions, but to “our pernicious financial, technological dependence on the West."

Russia requires about $100 per barrel of oil to balance its federal budget.

Benchmark Brent oil fell below $60 per barrel in morning London deals on December 16, hitting a low last seen in July 2009.

Russian Energy Minister Aleksandr Novak said on December 16 that Russia would not cut back on oil production in a bid to stabilize prices and would not call on OPEC to do so either.

The central bank said late on December 15 that the Russian economy might shrink 4.5 percent to 4.7 percent next year, the most since 2009, if oil averages $60 a barrel under a "stress scenario."

The central bank also said capital flight from the country may reach $134 billion by the end of the year.

Russian industrial output shrank in November for the first time in 10 months in a result seen as linked to the declining ruble.

The turmoil in Russia caused European markets to fall slightly. Companies with significant exposure in Russia -- such as Austria's Raiffeisen Bank, Finland's Nokian tiremaker, and Danish brewer Carlsberg -- suffered setbacks between 3 and 5 percent.

With reporting by AFP, Reuters, TASS, Interfax, and Bloomberg.com
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