We all knew this was coming, and we knew that it would be painful. After Central Bank Chairman Sergey Ignatiev indicated during a televised address yesterday that authorities would finally allow the value of the ruble to slip against its mixed basket of currencies (55% dollars, 45% euros), the markets have reacted rather negatively, with the MICEX dropping 10%. Chris Weafer tells Bloomberg that “They’re going to move the line in the sand back a little bit, where they hope they can defend it. If people start to lose confidence in the banking system, we could have a massive run on the banks as we saw twice in the nineties, and then the game is up.” Most analysts expect that Russia is still holding enough FOREX to keep the ruble from collapsing, but will likely allow a gradual decline until oil prices bounce back.
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One Comment
Squandering Russia’s rainy day fund on a Potemkin ruble is much worse than a falling ruble.Bounce back? Who says they’re going to do so? Wouldn’t that require a major uptick in the U.S. economy to boost demand? But many say the U.S. economy will go into recession! And Russia is doing all it can to attack America!Who says the price of oil won’t go still lower?