Russia Announces Surprise Interest Rate Increase to 17%
Earlier this week, Russia's central bank elected to hike their interest rate to 17% in order to attempt to slow and eventually reverse the stunning drop of the ruble. This was the latest chapter in a series of events that has practically brought Russia to its knees in recent weeks and months.
Back in January, one US dollar would get you approximately 33 rubles. In recent weeks, however, the USD to ruble chart has gone parabolic, as one USD will now buy you approximately 70 rubles. Things were even worse earlier today, as one USD was worth 79 rubles, though things have pulled back a bit in recent hours.
Russia is currently dealing with a "perfect storm" of events right now.
The situation in the Ukraine started the pandemonium in Russia. Sanctions against the country were announced and a great deal of foreign money was pulled out of the country.
Things really took a turn for the worse for Russia, however, after the price of oil started to collapse. Russia's fortunes are heavily linked with the price of oil and OPEC deciding not to cut their supply targets in mid-November was extremely bad news for Russia. With each passing day, oil continues to tank and Russia's fortunes seem to deteriorate. Money continues to flee the country and Russians are now staring another financial meltdown (their second in the last 16 years) dead in the eye.
The steep interest rate hike that Russia recently announced is a desperate attempt by the country to stop the ruble's slide. Russia is conceding that recent moves will likely result in a severe recession or even depression for the nation. The thing is, Russia doesn't really have any other options right now. They have been ostracized from much of the world and are at the mercy of dropping oil prices.
Russia's precarious situation now has many people asking the question - what will Putin do?
Will Russia back off somewhat in the Ukraine in order to gain some measure of goodwill from the international community or will they become even more aggressive?
Filed under: The Economic Meltdown