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Russia Hikes Interest Rates as Sanctions Slam Economy

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posted on Oct, 31 2014 @ 09:12 PM
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Russia Hikes Interest Rates as Sanctions Slam Economy


In further evidence that international sanctions are battering the Russian economy, the Bank of Russia on Friday announced that it had raised its benchmark interest rate from 8 percent to 9.5 percent. The move was meant to rein in inflation, which is now above 8 percent and rising, and the continuing decline in the value of the ruble, which is trading at historic lows against other major currencies.

“During September-October significant changes in external conditions have taken place: considerable fall in oil prices and stricter sanctions imposed by certain countries against several large Russian companies,” the bank said in an explanatory statement. “As a result the ruble depreciated[. T]hat together with restrictions on the import of certain food items imposed in August resulted in further acceleration in consumer prices growth.”

The move, which represents a 19 percent hike in borrowing costs, surprised analysts, because it was three times the size they had been expecting in advance of a meeting of the Russian central bank’s board of directors.

Analysts were skeptical that the bank’s move would succeed at either protecting the ruble or halting inflation. Many expected a revision of the bank’s policy of allowing the ruble to float freely against other currencies within a specific value “corridor.”

“Russia’s central bank had to deliver two things at today’s Board meeting in order to stem the slide in the ruble: an aggressive hike in interest rates and an immediate overhaul of the current exchange rate ‘corridor’ policy,” wrote Capital Economics in a research note. “It delivered on the first, but fell short on the second. The result is likely to be an environment in which the ruble remains weak, inflation remains high and monetary policy remains tight.”

To put the move into perspective, the Federal Reserve Board’s Federal Open Market Committee, which sets the U.S. benchmark federal funds rate, has historically changed rates in increments of one quarter or one half of a percentage point. At the beginning of the financial crisis, in December 2008, the Fed lowered rates by between 0.75 percent and 1 percent to quickly bring its key interest rates close to zero.


Click link for remainder of article -

* - Oct 2 - Ruble’s Nosedive Shows Power of Russian Sanctions

* - Oct 23 - Russia Tones Down the Rhetoric as Its Economy Struggles - See more at: www.thefiscaltimes.com...

* - Oct 30 - Russia Seen Sticking to 2015 Free Float Amid Ruble Flurry

* - Oct 22 - Russian Central Bank to Weigh Higher Rates on Inflation

* - Oct 31 - Russia’s Surprise Rate Increase Fails to Stem Ruble Drop


The ruble tumbled the most since 2011 after a larger-than-forecast increase of Russia’s key interest rate failed to ease concern that the economy will remain hobbled by sanctions and capital flight.

The Bank of Russia raised its key rate to 9.5 percent percent from 8 percent, according to a website statement. That surprised all 31 economists surveyed by Bloomberg.

Governor Elvira Nabiullina is resorting to higher borrowing costs to halt a currency run even after three earlier increases failed to assuage investors concerned about President Vladimir Putin’s stance on Ukraine. Policy makers said today that tighter monetary conditions haven’t offset the impact of a weaker ruble and trade restrictions imposed in August amid lower oil prices, inflation at a three-year high and sanctions levied by the U.S. and its allies over the conflict in Ukraine.

“A very harsh decision -- this hurts,” Ivan Guminov, money manager at Ronin Trust in Moscow, said by by e-mail. “What I’d like to understand is how the banks are going to manage this cost of funding?”

The Russian currency tumbled after the central bank, which plans to move to a free float regime from 2015, made no announcement on shifting its currency-intervention policy.

The ruble, which temporarily pared declines after the decision, surged yesterday on optimism Russia will take steps to stabilize the currency and deter speculators. It weakened 3.3 percent today to 43.0235 per dollar at 10:25 p.m. in Moscow, the biggest daily drop since August 2011.

Test Looming?


Click for remainder of article.

* - Ruble’s Two-Minute Rally Shows Russia Guessed Wrong


Just a quick update on the Russian economy and the impact sanctions are having.


edit on 31-10-2014 by Xcathdra because: (no reason given)

edit on 31-10-2014 by Xcathdra because: (no reason given)

edit on 31-10-2014 by Xcathdra because: (no reason given)




posted on Oct, 31 2014 @ 09:30 PM
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The doom and gloom everyone been predicting for USA economy is really about to happen in Russia. Putin will be the last ruler to see Russia have any power at all. This time they will lose the Nukes too. Putin is simply out classed at every level. He is flexing the little he has left, the rusting Soviet Military. Unless he wants to actually end the world for humanity he will lose...again.



posted on Oct, 31 2014 @ 09:37 PM
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a reply to: Xeven

I agree... but starved people do interesting things historically.


We will see what happens.



posted on Oct, 31 2014 @ 10:29 PM
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originally posted by: Xeven
The doom and gloom everyone been predicting for USA economy is really about to happen in Russia. Putin will be the last ruler to see Russia have any power at all. This time they will lose the Nukes too. Putin is simply out classed at every level. He is flexing the little he has left, the rusting Soviet Military. Unless he wants to actually end the world for humanity he will lose…again.

Famous last words. Another Dictator (guess who) thought he could kick in the front door and the whole rotten structure would collapse.

He was so sure the conquest of Russia would be a one season affair (Home before winter) he didn't even issue winter clothing to his troops.

Problem was Russia has eleven time zones and the Winters are brutal.



posted on Oct, 31 2014 @ 11:30 PM
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a reply to: intrptr

Except no one is invading this time. So brutal winters and time zones don't help Russia .. if anything they hurt them.



posted on Nov, 1 2014 @ 12:12 AM
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a reply to: Xeven

The new Russian mafia may be clever and ruthless but they are up against the greatest criminal minds in history in the City of London and at Wall and Broad...it will not end well for Russia



posted on Nov, 1 2014 @ 12:20 AM
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a reply to: Xcathdra

What would happen if Russia adopted the yuan? this would stop the collapse?
edit on 1-11-2014 by EA006 because: (no reason given)



posted on Nov, 1 2014 @ 12:53 AM
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a reply to: OccamsRazor04

So you think Russia will just starve without money? They've been through worse than this. They'll be fine. America will be the loser if they continue. Russia has plenty of support. America's been overreaching for a while now. Eventually the world will declare they've had enough of American hegemony.

Ever heard of hubris? I suggest you look it up.



posted on Nov, 1 2014 @ 02:04 AM
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a reply to: tavi45

Who talked about Russia starving. I replied to someone talking about an invading army freezing in Russia. There is no army, their post had nothing to do with the current situation.



posted on Nov, 1 2014 @ 02:07 AM
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a reply to: OccamsRazor04

So in what way will Russia be hurt? I thought you were referring to economic troubles when you talked about winter and time zones? Care to clarify how Russia will be hurt?



posted on Nov, 1 2014 @ 02:16 AM
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I think raising the interest rate by so much was a mistake and the import ban on EU food was a stupid idea but Russia has so many real tangible resources that are worth values independent of paper value. In the face of a decrease in oil prices the fall of the ruble is actually going to help them balance their budget as it is 50% of revenue and workers are paid in rubles while oil is traded in USD. Of course regardless of the currency they are traded in real assets have a value independent of any currency. A fall in the USD for example would have no more effect on the value of oil than a fall of the ruble as consumption and production are what moves prices/value of resources.

A barrel of oil is worth a lot more rubles now. In Australia we actually try to decrease the value of our dollar and consider it a good thing as it helps our miners who are is a major part of our economy. The big blunder Russia made was the food import ban as that increased inflation at a time they really didn't want or need to increase inflation.

They also should have just let the ruble ride and I think this rate rise is more about trying to decrease inflation than helping the ruble. It won't work though as the cause of inflation is external rather than internal. If they had an overheated property market or too much grow and needed to cool down their economy it might work but I imagine the cause of inflation is sanctions and their own EU import ban.
edit on 1-11-2014 by john452 because: (no reason given)



posted on Nov, 1 2014 @ 02:39 AM
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a reply to: john452

Great post. Basically Russia's fine. The west has to back down or cause WW3. That's what Putin said straight up recently.



posted on Nov, 1 2014 @ 02:43 AM
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a reply to: tavi45

They will be fine but they could be doing better. This situation is hurting the average person in Russia, Ukraine and to a lesser extent the EU.



posted on Nov, 1 2014 @ 02:45 AM
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a reply to: tavi45

I never posted anything about Russia being hurt. I made a post showing how someone else's post had nothing to do with the topic.



posted on Nov, 1 2014 @ 02:48 AM
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a reply to: OccamsRazor04

"So brutal winters and time zones don't help Russia .. if anything they hurt them."

You literally said hurt them..... How will they be hurt by their time zones or a season?
edit on 1-11-2014 by tavi45 because: fixed formatting



posted on Nov, 1 2014 @ 02:57 AM
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originally posted by: tavi45
a reply to: OccamsRazor04

"So brutal winters and time zones don't help Russia .. if anything they hurt them."

You literally said hurt them..... How will they be hurt by their time zones or a season?

No, I literally said they are more likely to hurt than help. You can't think of any reasons why a brutal winter will hurt a country?



posted on Nov, 1 2014 @ 03:04 AM
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a reply to: OccamsRazor04

Not when the country has always had brutal winters for all of its history. Russia can handle winter that's the point.



posted on Nov, 1 2014 @ 03:08 AM
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originally posted by: tavi45
a reply to: OccamsRazor04

Not when the country has always had brutal winters for all of its history. Russia can handle winter that's the point.


Who cares. Brutal winters have expenses tied to them. Can you explain how a bad winter will hurt US troops as was stated by the person I replied to?



posted on Nov, 1 2014 @ 03:11 AM
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a reply to: OccamsRazor04

If US troops go there it will. If they don't who cares.

Your point is that we won't invade so we won't lose like Napoleon or Hitler. So how exactly are we gonna beat Russia?



posted on Nov, 1 2014 @ 03:15 AM
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originally posted by: tavi45
a reply to: OccamsRazor04

If US troops go there it will. If they don't who cares.

They are not there, so you agree with me that the brutal winter will not impact them. If you agree with me why are you arguing with me?


Your point is that we won't invade so we won't lose like Napoleon or Hitler. So how exactly are we gonna beat Russia?

No, the person I replied to linked the impact of winter on invading troops and the impact winter would have to a non invading nation using economic sanctions.

My only point is that there is no link. Invading armies and economic sanctions are not the same.



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