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Russia Hikes Interest Rates as Ruble Goes Through the Roof


Russia’s being deep sixed by the fall in crude oil prices. The Russian Ruble has crashed to a record low of 55 to a dollar, which would make its 2014 performance devastating.


That is because the crude oil prices have fallen all the way to $60 a barrel. (This is WTI, Brent is below $65)


This hurts Russia because it is a massive exporter of crude. But let’s think in rubles. If crude at $100 was giving them 3,300 rubles at the 33 USD/RUB rate, then crude at $60 is giving them the same $3,300 at 55 USD/RUB.

In that sense there is no inflation of crude prices within Russia, but a lot of other things will have gotten far more expensive, if they have to import them. That’s stoked inflation, which is running at 9%. And to attempt to control that inflation, Russia has raised rates five times, the latest one today to 10.5% (a 1% increase).

Russians, to save their money from being devalued, are taking their money overseas. (Russia freed the ruble to make it a floating currency earlier this year, after spending a large amount of money defending it) They are even buying cars, which supposedly aren’t losing value on purchase.

The situation will (and should) bring India and Russia together. We don’t trade that much with each other, but India is not party to the sanctions placed by the US etc. Things are happening – Russia will help India with 10 nuclear power generating reactors, and will build an advanced helicopter in India.

The falling prices of crude oil will make Russia less dependant on that export, over time – but meanwhile they will go through a recession. What isn’t evident is how that will work out for the rest of the world.


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