A rough ride for the rouble, but Putin remains in the driving seat

Russia’s Central Bank remained mute on Tuesday over whether it had stepped in to prop up the rouble after a tumultuous 48 hours for the currency.

Vladimir Putin

President Vladimir Putin by premier.gov.ru [CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

On Monday, the rouble suffered its worst one-day decline in 16 years, at one stage falling eight per cent against the dollar, to close the day four per cent down.Over the past 12 months, the rouble has lost about a third of its value, the primary reason resting in the fall in the price of oil, exacerbated on Monday not to cut production despite the fall in global demand. Adding to Russia's problems are Western sanctions imposed because of Russian intervention in Ukraine.With zero growth expected in the Russian economy this year, Moscow’s economy ministry is now forecasting that the nation will go into recession next year, revising a predicted growth figure of 1.2 per cent in 2015 to a decline in GDP of 0.8 per cent.Additionally, inflation currently stands at around eight per cent and is edging upwards while the Central Bank’s key interest rate has now hit 9.5 per cent after steady rises throughout the year.Despite this, President Vladimir Putin’s hold on office seems as secure as ever. Although independent pollsters say his popularity has fallen slightly in the past few weeks, he still attracts an 85 per cent approval rating.“The combination of lower oil price and weaker rouble obviously put pressure on the Russian leadership, but the consequences may be less dramatic and direct than expected,” Marcus Svedberg, chief economist at East Capital, told CNBC on Tuesday.“The economy, although close to a standstill and with poor prospects for growth next year, is not necessarily fragile. Reserves are ample, debt is relatively limited, and unemployment is historically low and there is no sense of panic or stress in Russia.”Although the Central Bank would not confirm it had entered the forex market to support the rouble, most analysts felt certain there had been activity. Tim Ash, a Standard Bank analyst, said he was surprised the bank had not acted sooner since the floating of the currency on 10 November.“Logically, one only has to conclude that the weaker rouble is part of the Russian authorities’ policy responses to lower oil prices and sanctions (over Ukraine) as it helps prop up growth and helps keep the budget on track by boosting the rouble value of dollar oil revenues,” he said.Mr Ash did not see any immediate threat to Mr Putin’s “total power”. He added, “I don't think the West, either, is in the game of regime change, because they fear that someone after Putin might be much worse. At least Putin is naturally cautious by instinct and very calculating – or that is the view in the West.“But I do think Putin is at a crossroads between isolation and rediscovery of a new relationship with the West, which could be better for both sides. Unfortunately, at the moment isolation from the West looks more likely and that will be bad for Russia over the long term.”You may also be interested in:US and EU step up pressure on Russia over Ukraine crisisEU nations accept sanctions will hurt their own economiesCameron calls for tough sanctions on Russia and an end to arms salesThe Russian bear bites back – Putin imposes ‘full embargo’ on food importsRussia introduces fingerprinting for visa applicants at certain consulatesFor more Relocate news and features about Russia click here

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