Russian government warns against panic as national currency plummets toward collapse

(NaturalNews) A combination of aggressive Russian military actions, falling oil prices and sanctions by Europe and the United States may be having a dramatic effect on the nation's currency, as authorities worked to calm fears last week when the embattled ruble fell to record lows.

In recent days, the Russian currency fell to 38.82 rubles per dollar, just days after weakening to below 38 rubles to the dollar for the first time. In addition, the currency broke through the "symbolic level of 50 rubles per euro for the first time in several months," Agence France-Presse (AFP) reported.

Russia's currency has begun to tank as investors' worries over the impact of even tougher Western sanctions against Moscow are being considered over Russia's military intervention in Crimea and Ukraine. Already, the Russian economy is edging toward recession, AFP reported, adding:

Ordinary Russians said they were concerned that a weaker ruble would drive up inflation and make foreign trips and foreign currency-denominated purchases an increasingly unaffordable luxury.

Alexei Moiseyev, Russia's deputy finance minister, tried to reassure the public, saying the government was taking measures to cut inflation.

"Don't panic," he advised.

Actually, do panic

At this writing, the ruble was still worth a bit more than it was at its lowest last spring, when it was 50.22 rubles per euro following Moscow's annexation of the Crimea in March. The annexation is a violation of a 1994 agreement between Russia and the U.S. to never use military force against Ukraine, in exchange for the latter's surrender of thousands of Soviet-era nuclear weapons following the collapse of the U.S.S.R.

Since the beginning of September, the dollar has risen 1.7 rubles.

"The ruble has come under renewed fire over the past few weeks," said Capital Economics, a London-based economic research consultancy. "The latest drop means that the ruble has now fallen by 15 percent against the dollar since the start of the year, the biggest fall of any major emerging market currency with the exception of the Argentine peso."

Andrei Nechaev, a professor at Moscow's Plekhanov University of Economics, told AFP that the increase from 36.5 rubles to 38 rubles against the dollar in just a few days was a reflection of the mood of panic on the global currency market. He added that panic was likely to continue, as would a resultant drop in the ruble's value.

"I don't think it will reach 40 rubles so far but 39 is pretty realistic," he told the French news agency.

Ordinary Russians are hurting

Mikhail Kuzmin, a banking analyst, told the website Investcafe.ru that the Russian central bank did not possess the powers it needs to blunt the ruble's decline, even if that was the plan.

"To prop up the ruble exchange rate, you need very significant resources," he told AFP.
"The central bank could risk spending a lot over a month or two and then the ruble will fall anyway."

Not all is bad news; a weaker ruble will benefit Russian exporters, in particular sellers of oil for dollars, and that will boost Russian budget revenues, said Kuzmin.

"For the Russian economy there is also a plus -- citizens will be more likely to go on holiday and spend money inside the country," he added.

However, ordinary Russians are complaining that a weaker ruble is hurting their personal finances.

"It's a disgrace, I am very much worried," Larisa Krasnopevtseva, 53, of Moscow, told AFP.

"The purchasing power of our ruble is dropping. It means I will rest less, work more and have worse medical care. I don't know what's behind this fall but I very much don't like it," she added.

Sources:

http://news.yahoo.com

http://www.bloomberg.com

https://www.capitaleconomics.com