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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

Sunday, Nov. 23


Get in the holiday spirit at today’s Winter Bazzar at the Astoria Hotel. Featuring gifts from around the world such as French eclairs, Dutch cheeses and Indian jewelry, the annual event organized by the International Women’s Club will feature 18 international stands and raise money for charity through the sales of a diversity of products that further illustrate the city’s international connections.



Monday, Nov. 24


Dr. Axel Schulte, Department Head at Fraunhofer Institute for Material Flow and Logistics in Dortmund, Germany, is the featured speaker at the SPIBA Industrial Committee lecture on “The Fourth Industrial Revolution: Digitalization of the Supply Chain.” The event begins at 4 p.m. at the Graduate School of Management at 3 Volkohvsky Pereulok and registration is required by Nov. 21 either by emailing office@spiba.ru or calling 325 9091.



Tuesday, Nov. 25


Tag along with AmCham during their “Industrial St. Petersburg” Tour program today. This incarnation of the ongoing series will visit Philip Morris Izhora and include an Environmental Health and Safety Committee meeting.


Find out how to expand your business east during the “Business With China” forum beginning today and concluding tomorrow at the Lenexpo convention center. The largest Russian forum dedicated to business with the Asian giant, topics that will be discussed include logistics, customs clearance, trade financing and many more.



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