After falling in December of over 50% against the dollar, the ruble was after the intervention of the Central Bank of Russia managed to make up for the previous fall. However, at the beginning of this year the machine again fell 13% compared to the US currency. Just a year ago the Russian economy achieved a growth of 1.5% and President Vladimir Putin was about to organize the Winter Olympics in Sochi-in. Official Moscow is with great effort try to prevent a currency crisis that could turn into a real crisis. At the end of last year Putin accused the collapse of oil prices and sanctions that Western countries have introduced Russia as the main reason for the financial crisis in this country. Only during the last year the Russian ruble lost 45% of its value against the dollar and even at one point dropped to a record low. According to Bloomberg data Russian national currency had the worst results during the 2014 years of all 170 world currencies. The inflation target set by the Central Bank of Russia has been for the last year 5%. In reality, it reached 9.4% and continues to grow. In mid December, the Central Bank of Russia increased its benchmark interest rate from 10.5% to 17%, which is the largest single increase since the country went bankrupt in 1998. This was the last of a total of 6 increase by the central bank undertook to defend the ruble and rein in inflation. The IMF expects that because of what happened last year, the GDP of Russia during the last quarter, despite the forecast growth of 0.2% to be almost completely erased. Russian officials believe that over 2015 years the activity of the economy could be as low as 5% if crude oil prices remain below $ 60 per barrel. The price of crude oil fell below $ 50 a barrel as the lowest level in the last five years. This decline in prices particularly hit the economy of Russia as half of the national income comes from oil and gas exports. It is expected that the budget deficit will be about 2% just depending on oil prices. The growth of the deficit has led to the fact that Vladimir Putin ordered the reduction of public expenditure by 5%. Defense and National Security are the only ministry that will be exempt from this reduction. The reserves that Russia has in foreign currencies during the last year fell to 416 billion dollars which is about 21% fall compared to the previous year. The Russian government, banks and companies have debt of nearly 678 billion dollars, of which about 130 billion dollars must be returned by the end of this year.
The Central Bank of Russia on Monday night has drastically increased interest rates from 10.5% to 17%. According to representatives of the bank this move has been taken to halt the sharp decline of the Russian currency. Since the beginning of the Russian currency fell as much as 45%. The growing concern that the global decline in oil prices could to destroy the economy of Russia which the energy sector dominant part, influenced the Central Bank of Russia on Monday late in the evening hold an emergency meeting at which the decision was taken on the urgent action to prevent the collapse of the ruble. According to the bank unless a longer period is to remain effective increase in borrowing costs, deepen the recession in Russia. However, this move was still necessary in the fight against inflation and devaluation of the Russian currency. Higher interest rates aim to domestic currency more attractive to foreign investors so that the machine rose against the dollar immediately after this sudden decision was made. But the day that followed, the Russian ruble still fell an additional 22.8%, before to balance.
The recent decline of 10% ruble against the dollar has alarmed the global financial market, so that the FTSE100 index fell to its lowest level in 2014. Investors have reduced investment in the action amid concerns that a deepening economic crisis could destabilize the Russian economy and further hamper the west communicate with Russian President Vladimir Putin, which would result in an increase in geopolitical tensions not only in Eastern Europe but also in the Middle East. Analysts this move of the Central Bank of Russia is seen as a message that it is determined in order to protect the ruble. The increase in interest rates on 10.5% of Russian bank adopted a week before was not impressed financial market, as at that time the price of oil fell to the lowest level in the last five and a half years. And if you currently almost twice lower oil prices than it was this year, should positively affect the recovery of the global economy through increased spending and reducing business costs, investors are still concerned that low oil prices in fact reflect reduced demand weaker global economy. The largest European stock exchange lost about 2% of its value due to falling ruble against the dollar despite the efforts of the Russian Central Bank.
Oil and gas comprise about 70% of Russian exports, the official Moscow is needed price around $ 100 per barrel to balance the budget. Even before the dramatic announcement of increase in interest rate forecasts of the central bank were to be Russia’s GDP in 2015 to reduce 4.5% if oil prices remain at current levels over the next 12 months. The price of oil much pressure is further made statements of representatives of OPEC, according to which it is clear that the cartel had no intention of cutting production. Some analysts even believe that Saudi Arabia and the United States deliberately lowered the price to put pressure on Putin. While the West prepares to impose even harsher sanctions Russia bad news for this country is certainly the fact that the probability of imminent recovery in the crude oil smaller and smaller. This week is the International Energy Agency published its forecasts according to which reduced the odds of future demand. The combination is still growing production in the US and determination of Saudi Arabia to maintain the current level of production signaled that in the year ahead in oil prices could fall further and.
In the last three weeks the price has risen 24.5%, which is the largest three-week growth rates since January 2009, and currently is around $ 54 per barrel. The downward trend that preceded this growth, influencing the price of crude oil is lowered from $ 107 to less than $ 43.50 per barrel during the last seven months. The increase in price caused by the recent events that have pointed to a possible decline in production. British Petrol recently announced that it would reduce investment in new projects. And the other big oil companies have brought a similar decision. According to Baker Hughes, company which is engaged in servicing oil wells, ordering drilling rigs fell to the lowest level in the last three years which is a clear sign of the decline of interest in new oil wells. In addition, other factors have contributed to the growth of prices. Among other things strike of workers in some oil refineries in the United States raised the price of gasoline and diesel because of fears that it will be a decrease in the production of this fuel.
Large producers such as Russia, Venezuela and Iran are already in a difficult situation because of the current low price. While lower prices mean that the fuel cheaper, yet at the same time mean an increase in geopolitical and social instability. Whether the price stabilizes at 40 or 60 dollars a barrel, it is well below the optimal $ 100 and many economists believe that it will be done a lot of pressure on inflation in the developed countries. The fall in inflation can lead to consumers and companies remain trapped in the atmosphere of deflation, where employers in anticipation of lower wages and offering lower wages. Many analysts believe that despite the decrease in production of global demand will soon increase. Moreover, stocks continue to rise. Only in the US are currently at the highest level in the last 84 years, as confirmed by the data of the American Petroleum Institute. The question that lately quite often asked is whether this is definitely the bottom or the price will continue to fall. However, it is too early to say. When price declines sharply from previous lows rarely growth continues, usually the price previously stabilized. Yet what makes the most economists agree is that after a period of stabilization, we can expect a gradual increase in prices of crude oil of this year can again climb above $ 60 per barrel.