Russia’s Double Exposure

Gabriel Stein, chief of research at Lombard Street Research, talks with the Financial Times about why Russia’s economic stimulus policy package has failed to produce results.

Mr Stein says Russia is paying the price for its double exposure to the “most serious hazards of the modern world – energy and exports to continental Europe.” The former, he says, is the result of Moscow’s single-minded pursuit of energy control, regardless of the damage to Russia’s business climate.

“The rouble has strengthened this year, partly on . . . optimism about emerging markets, partly due to – but also a cause of – Russian stock market gains and partly [on] high interest rates.

“Rateswere cut to 12 per cent last week, [but] remain attractive – and shouldprovide a barrier to the rouble collapse that the state of the economyseems to call for.

“If maintaining the value of the roubleremains the goal, it will be very difficult to ease monetary policyfurther. Better to act now to moderate a devaluation which representsthe loss of income implied by the collapse of energy prices.”