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Ruble Being Punished for Economy, Not Ukraine

Published: March 8, 2014 (Issue # 1800)


When a St. Petersburg Times reporter asked me in January about the likely direction of the ruble for the year, I stuck an old trader's finger in the wind and predicted it was headed to 37 rubles to the U.S. dollar. Well sure. For the year. But I never expected it to happen by March. Is it time to panic yet?

Monday saw the markets gunning for the ruble on the back of the Crimean crisis. From all the selling it seemed like the ruble isn't even worth a ruble anymore. The currency almost reached the 37 mark before the Central Bank began to intervene.

Related: Economist Advises Russians to Dump Ruble, Buy Hard Currency

Monday's market turmoil was just a hyperextension of a trend that has been gathering steam for some time.

The Central Bank intervened in two ways. It sold nearly $10 billion, buying rubles, to drive the price back to 36.5 to the dollar. This had the effect of stopping the momentary panic that had developed. But before doing that, the bank raised the base interest rate by 1.5 percent. "Smart money" calls this "150 basis points." Whatever you call it, this was a really large interest rate jump for one day.

Related: Ruble and Stocks Tumble on Ukraine Turmoil

The intuition behind this decision was that if you offer a high enough yield, people will sell the currently low-earning currency and buy it at a higher yield. In calm markets this sort of measure will work on only a one-fourth percent, or 25 basis points, increase. Here the Central Bank bumped up rates by six times that amount and, surprisingly, that did not work to brake the ruble's skid.

Like any smart financial guy, I keep a large amount of my money in the currency where I live — Russia. So what happened to my rubles?

Fear and pain following Russia's military intervention in Ukraine last weekend is obviously a factor. Clearly some market players were expecting some sort of backlash from the world regarding Russia's moves. There was the usual talk of U.S. sanctions, presumably to fall on Russian state banks. When it comes to financial sanctions, it is hard to dream up a government player more scary and dangerous than Uncle Sam, and any action against Russia could leave a lot of folks high and dry. Naturally, smart guys would buy dollars and move them out if they feared sanctions, thus contributing to flush the ruble out. But this is not sufficient to explain the crash.

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ALL ABOUT TOWN

Thursday, Jan. 29



Attend a master class on how to deal with complicated business negotiations today at the International Banking Institute, 6 Malaya Sadovaya Ulitsa. Running from 3 to 6 p.m., Vadim Sokolov, an assistant professor at the St. Petersburg State University of Economics, will introduce aspects of managing the negotiation process and increasing its effectiveness. Attendance is free with pre-registration by telephone on 909 3056 or online at www.ibispb.ru



Celebrate what would be writer Anton Chekhov's 155th birthday at the Bokvoed bookshop at 46 Nevsky Prospekt. Starting at 5 p.m., the legendary author will be feted with readings of his stories and short performances based on his plays by various St. Petersburg actors. Chekhov's books will also be offered at a 15% discount during the event.



Friday, Jan. 30



The Lermontov Central Library, 19 Liteyny Prospekt, will screen 'Almost Famous’ in English with Russian subtitles at 6:30 p.m. Cameron Crowe's Academy Award-winning comedy from 2000 stars Billy Crudup, Kate Hudson, and Patrick Fugit, and tells the story of a budding music journalist at Rolling Stone magazine in the 1970s. Admission is free.



Meet renowned Russian poet, journalist and writer Dmitry Bykov, famous for his biographies of Boris Pasternak, Bulat Okudzhava and Maxim Gorky, and winner of 2006 National Bestseller Award. Bykov will read old and new poems as well as answer questions about his works at the St. Petersburg Philharmonic, Main Hall, at 7 p.m. Tickets start at 1,000 rubles and are available at city ticket offices and the from the Philharmonic website www.philharmonia.spb.ru.



A retrospective of the films of Roman Polanski starts today at Loft-Project Etagi, 74 Ligovsky Prospekt, with a screening of ‘Repulsion’ at 7 p.m. and ‘Rosemary’s Baby’ at 9:15 p.m. The series runs through Feb. 4 and will include Polanski's eminently creepy ‘The Tenant,’ the cult comedy ‘The Fearless Vampire Killers’ and ‘Cul-de-sac’ among others. Tickets are 150-200 rubles and the complete schedule is available at www.vk.com/artpokaz/



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