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Commentary

The Russian Ruble Continues to Fall, Loses 40% in 2014

The Ruble has crashed to 46 to a dollar. The currency has fallen from 32.6 in Jan 2014 to lose more than 40% in 10 months.

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Russia increased interest rates by 1.5%, taking the interest rate to 9.5%  but that hasn’t seemed to have helped much.

There are two ways to look at it.

  • People who own Rubles have to pay 40% more than last year for buying something for the same number of dollars. That computer costing $1,000 has gone from 32,600 rubles to 46,000 rubles.
  • People who invested from abroad into something in Russia – say Russian bonds – have lost 30% on their investment. If you bought 32,000 rubles last year paying $1,000, the same rubles would give you just $696 today.

The impact will be felt in many ways.

Russia exports crude, and the crude price has crashed over 20%. However, in ruble terms, it’s probably gone up!

Russian companies that issued dollar denominated debt (much like our ECBs) will have to pay many more rubles (40% more) to compensate for the depreciation. Some may have hedged this exposure but given the ruble was stable for many years, possibly not. The  Russian Central Bank may sell forex reserves in repurchase auctions to help.

Russian exporters will benefit, at least in ruble terms. Here’s a list of winners and losers.

In India, we import a little bit from Russia ($3.9 bn), like:

  • Diamonds ($750m)
  • Potassic fertilizers ($354m)
  • Silver ($324m)
  • Copper, Rubber, Newsprint etc,

This will get cheaper to import, in rupee terms (the rupee has been relatively stable this year with the dollar, so it would gain as much against the ruble)

Our exports to Russia could be in trouble. They were $2.1 billion last year, but will be relatively lesser. We largely export Pharmaceuticals ($525 m), mobile phones ($115m) and Tea ($108m).

One big impact would be tourism. Goa is flush with Russian tourists. The number of charters coming into Goa was expected to drop to 500 from 900 , but that was at 42 to the rouble – which has fallen another 10% since. Tough times.

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  • Rama Karupaiah says:

    This is 3rd World War!! Look at it – the US is doing its best to knock the floor out from beneath the Russian economy. Think! How is such a large move possible in so short a time? The drop in price of oil!
    Remember Russia and China are moving away from petrodollar system. I find it strange that oil price drops and by so much. Nothing has changed fundamentally with the world economy. Commodities generally had been ramped up by QE ad infinitum. Ever since 2008 the world economy has not recovered, only shored up by temporary measures and fudging by major economies, viz., USA, Europe, China, etc. Just look at the USA – do you call it a recovery when labour participation is the lowest in so many decades, when hourly rates are dropping, when U6 unemployment is stubbornly above 16%, when CPI has been suppressed, when GDP is a fudged figure (the latest 3.5% is wholly because of defence and govt. spending…. I could go on and on.
    Look at Europe – Portugal, Italy, Spain, Greece, Bulgaria, Hungary.. all seem to be limping from crisis to crisis. So how come commodity prices stayed so high?? Just look at paper contracts verses actual deliveries and probably you can spot the scam.
    So whats happening now?? Its too convenient, oil drops, US QE declared ceased, Japan jumps into the fray, carry trades get hyperactive to help our banking friends … Heck, this to me looks like a manipulated market. By the way a low Yen means currency war declared on China and rest of Asia. The US knows shale oil is at risk but shale oil anyway was a losing proposition (the industry is mostly cash negative); and the US is willing to take that risk.
    Would like your take on it?? To me investing is a function of reading the minds of Central Bankers!!!

  • Rama Karupaiah says:

    Unfortunately India is not in a strong enough position, economically nor from a securtiy perspective, to thumb its nose at the USA. India tried to buy oil from Iran when sanctions were in force and it was arm twisted by US to limit its purchases from Iran,
    Modi and Doval are very much aware of these challenges; that is why he paid so much attention to foreign policy and foreign trips in the first few months of his tenure. Look at his itinery – Bhutan, Nepal, Japan, host to China, the US, host to Vietnam, and now Australia. That is why he engaged not only the President but lawmakers from both sides of the aisle. He was specific in his offer – we want to cooperate with you but take care of our concerns – Pakistan, terrorism, Dawood Ibrahim. And it looks like the US is beginning to tango with India. But there is a long way to go.

  • piyush says:

    oh.. roubles are crazy.. look at this graph first…http://www.tradingeconomics.com/charts/russia-currency.png?s=usdrub&d1=19930101&d2=20141231
    Their currency in past 20 yrs has gone from 2 to some 48.. that’s crazy for a third world country.. forget a country as large as Russia..

  • JustSaying says:

    Imports from Russia are just $3.9bn! What about defense imports?

  • Shyam says:

    That Ruble chart looks like a bubble in the most classic sense. I dont know much about Russia but I do know it is not going to vanish from the face of earth. This knee jerk reaction is totally unnecessary. Is there any way I can invest in Russian stocks (or bonds or Ruble) from India? That is going to be the trade of 2015. You have to of course get out once you made 50 to 60% in a year or so. Russian companies are not exactly the citadel of corporate governance but man their export industry has got a nitro boost.