Trouble in Russia as the Ruble Struggles

Posted by Allison on 16 December 2014, 15:55

Russia has never been far from the news in recent months. Other world leaders have made it very clear they are far from happy at the decisions made by Russian president Vladimir Putin with regard to his stance on Ukraine. This has been compounded by falling oil prices.

This in turn has led to the Russian ruble becoming the world’s weakest currency this year. Before now the Ukrainian hryvna held this title, but now the ruble has sunk below it, something few would have predicted at the start of the year.

This position was reached on Monday 15th December, when the ruble dropped a massive 10% against the US dollar. This meant the Russian currency was nearly 50% lower in value against the US dollar than it had been at the start of the year.

It is also likely to be one of the reasons why those in charge in Russia decided to hike up interest rates overnight. Last night interest rates stood at 10.5%. This morning they stand at 17% - a massive rise of 6.5% that is being seen by some as a massive gamble on the future of the currency and the economy too. The move led to the ruble gaining 9% against the US dollar early on in trading on Tuesday, although a significant portion of those gains soon disappeared.

The economy in Russia is certainly troubled, and this significant rise in interest rates certainly won’t be welcomed by its many citizens. Judging by some of the comments made, some believe the rise in rates is nothing more than a sticking plaster that won’t actually help heal the wound underneath. Russia cannot control the price of oil which continues to dip. It also cannot have an effect on the Western sanctions placed on Russia as a result of the situation with Ukraine.

It remains to be seen what happens next and whether or not Russia will recover from this situation. One thing is certain though: it is a situation that seems destined to play out throughout most if not all of 2015 as well. If the price of oil continues to drop, Russia could be in for some more serious problems yet.