The rouble slumped to new all-time lows on Thursday (January 21) as speculative pressure on the currency built, piling pressure on policymakers and reinforcing fears about the fragility of the commodity-dependent economy.
Pushed down by a collapse in global prices of oil that has soured sentiment for Russian assets, the rouble broke through 83 roubles per dollar for the first time before later slumping to 86 per dollar.
Chief economist with Alfa Bank, Natalia Orlova, said the rouble is unlikely to recover while oil prices remain low.
“Now when oil prices are aggressively going down, of course, the (rouble) exchange rate is following it. So, unfortunately, when we ask ourselves the question: ‘where is the bottom in the exchange rate fall?’ – it is actually a question about when the falling oil prices will reach the bottom. And so far, obviously, it has not reached the point of stability. There is still a potential for further lowering. So, I would say that it is still too early to expect the situation on the currency market to quickly calm down,” she said.
Brent crude oil was down 0.1 percent on Thursday 13-at $27.9 a barrel, having earlier been down around 2 percent at $27.3.
The global crude benchmark has lost around 25 percent since the start of the year, while the rouble is down around 12 percent versus the dollar.
Orlova said there is no evidence that the situation in the oil market would see an improvement in the short-term, adding the climates in Iran and China were significant factors.
“There is a factor of Iran returning to the international markets. And it is actually a rival for Saudi Arabia, so now so to speak Saudi Arabia is not interested in the rise of the oil prices. In terms of demand for oil, there is the factor of China. We also know that (the economy of) China is slowing down now. A lot of experts predict the slowdown of the Chinese economy will be hard, some say that it will be soft,” said Orlova.
“In fact the problem of the oil market is that it is now very hard to identify the factors (that will make oil prices grow) – if maybe just some kind of geo-political conflict breaks out in the Middle East – but unfortunately, all of the fundamental factors tell us that oil will remain under pressure,” she added.
Economic crisis has already showed itself in a series of costly bank failures.
Vneshprombank, a major mid-sized bank, was stripped of its license on Thursday. The bank’s clients included members of the country’s elite as well as the Russian Orthodox Church, and its collapse became one of the a largest-ever in Russia.
On Wednesday (January 20), holders of dollar mortgages stormed an office of Delta Credit bank in the capital, demanding that their agreements be reviewed.
Express-Volga, a bank based in the Russian provincial city of Saratov, said it would limit its operations with foreign currency from Feb. 1 due to market volatility.
Independent political analyst, Maria Lipman, said the sting of a plummeting rouble threaten more hardship for ordinary Russians in the future.
“The government cannot afford to cut expenditures on the defence, especially at a time when Russia is engaged in a military operation. The government pledges not to cut down social expenditures, but I don’t think it can do this. And already the talk is that taxes will have to go up, this is inevitable. And all kinds of other measures will be taken that will affect people’s lives directly. This on top of the reduced incomes and the growing inflation already,” said Lipman.
The Kremlin denied the currency was collapsing. Kremlin spokesman Dmitry Peskov said President Vladimir Putin was being briefed about the currency moves, but that the central bank had the situation in hand.
Reuters
