Economic warfare devastates Russian economy

The Russian rouble has dropped to a new low against the US dollar, as falling oil prices and Western sanctions continue to weigh on the country. http://www.bbc.com/news/business-30475236

As of Monday afternoon, it takes more than 60 roubles to buy a single dollar.

The 60 mark is considered a “psychological barrier” for Russia’s national currency, says the BBC’s Moscow correspondent, Steve Rosenberg.

Since the start of the year, the rouble has lost more than 45% of its value against the dollar.

Russia’s central bank has tried unsuccessfully to stabilise the currency, buying roubles in the markets and raising its main lending rate to 10.5%.

But those efforts have been overwhelmed by the fall in the price of crude oil – one of the country’s main exports – and by concerns that international sanctions over Ukraine might be stepped up.

Russian authorities appear unable to bring down inflation either – prices are expected to be 10% higher by the end of the year.

Interventions

In November, Russia’s central bank announced it was going ahead with a free float of the rouble by abolishing its unofficial link to the euro and the US dollar.

It also announced it was ending automatic interventions to support the currency, instead propping it up only when it was deemed necessary.

The bank had previously supported the rouble when the exchange rate against the euro and dollar exceeded certain limits.

However, last week, the bank admitted it intervened to support the rouble in foreign currency markets, spending a total of $4.53bn.

Oil woes

The rouble has been heavily affected by the price of oil, which has been in steady decline in recent months.

On Monday, Brent crude fell to almost $60 per barrel – a five-year-low – before recovering to just above $61.

The dip came after the head of oil cartel Opec reiterated at the weekend that the group would not reduce production to help shore up oil prices.

Russia’s central bank has warned that the country’s gross domestic product could contract by approximately 4.5% next year, if oil remains at $60 a barrel.

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