Signs of Russia’s growing economic distress became even clearer today, as the central bank unexpectedly raised interest rates for the second time since March, while Standard & Poor’s cut the country’s debt rating to one notch above junk.
In lifting the benchmark borrowing rate from 7 percent to 7.5 percent, the bank said it was acting to cool inflation that’s now running above 7 percent. But, says economist Tim Ash of Standard Bank in London, “it has nothing to do with inflation. It’s all about signaling that the central bank is shoring up its defenses” to strengthen the ruble and stem the flight of capital from the country.
Whether the bank can achieve those goals looks doubtful. The ruble, the second-worst-performing currency among developing countries this year, continued to lose ground today, trading above 36.01 against the dollar. And, as S&P noted in its downgrade announcement, the standoff over Ukraine could spur capital outflows, which already exceeded $50 billion during the first three months of the year. Ash predicts the total could reach as much as $200 billion by yearend.
With Russian companies and consumers facing higher borrowing costs, the rate hike will depress an economy that’s already in danger of tipping into recession. And continuing political uncertainty over Ukraine means that foreign companies “will not invest in Russia’s real economy, they’ll just stall their investment,” Ash says.
Moreover, “inflation is likely to remain relatively high,” above 7 percent this year, emerging-markets economist Liza Ermolenko of Capital Economics in London wrote in a note to clients. “This is the result of Russia’s deep-seated economic problems—in particular, the fact that wages have been growing well ahead of productivity.”
All this while the West is still mulling tougher economic sanctions on Russia. President Obama, traveling in Asia, is planning a conference call with European leaders to discuss whether to expand the limited sanctions now in place. Secretary of State John Kerry warned in Washington on April 24 that Russia was running out of time to avoid sanctions. “If Russia continues in this direction, it will not just be a grave mistake, it will be an expensive mistake,” he said.
“What we’re seeing now is a pretty permanent exodus from Russia, and it will be very difficult for the Russian central bank to fight it,” Lars Christensen, chief emerging-markets analyst at Danske Bank in Copenhagen, tells Bloomberg News. “The central bank is very much between a rock and a hard place. They frankly seem quite desperate in their actions.”
18 comments:
It seems that Russia is having problems withstanding western sanctions. The central bank unexpectedly raised the interest rate for the second time since march. The bank is claiming to cool down inflation but in reality it really isn't. Companies and consumers facing a high borrowing costs is causing the country to go closer to recession. The fact that the inflation rate is very high is Russias main problem. If Russia remains to keep doing this, sanctions will be very bad for them. Obama is setting up a conference call to discuss about the sanctions. Russia should be very aware of these sanctions and try to do something about them
Russia is currently facing economic difficulties due to the unexpected raise in the interest rate for the second time since March. The bank raised the rate from 7 percent to 7.5 percent. The central bank is saying that their aim was to reduce or "cool down" inflation but there are no results of a reduce of inflation from their actions. The Russian economy is already tipping towards recession and if Ash's prediction of $200 billion comes into effect Russia will fall into a recession.
Russia's inflation is way too high, they need to stop paying wages that are above the level productivity. Currently the central bank has increased interest rates from 7% to 7.5% which leads the way for Russia into a recession in the nearby future. With about the interest rates come the issue of borrowing from outside the country and also the lack of almost all investment in the country. Russia needs to gain control on the rate of inflation in their economy, otherwise they are sure to fall into a recession soon.
Russia is already facing an economic crisis and if the U.S. placed sanctions on Russian goods this will further put them in a "recession". With the central blank raising interest rates and companies facing higher borrowing costs, Russia can not withstand such sanctions. The U.S. means to help Russia's economy by sanctioning top Russian Officials and companies that supply military technology to the Russian army to deflate the already growing crisis in the Ukraine which will be the first step in trying to prevent further complications between Russia and other European Countries. This act I believe will help settle ties between Russia and foreign companies to help Russia's economy without any sort of sanctions.
Russia has recently enforced higher interest rates which will be very negative for the Russian economy as a whole. From the wage increases without productivity increases to the problems with Ukraine, these are issues that effect the interest rates and the inflation problem. The economy is on the brink of a recession. The ruble is not doing good and it is trading 36.01 against the dollar at the moment. Russia is also facing problems with sanctions that need to be dealt with. President Obama is working with European nations to get Russia to deal with their sanctions. If Russia does not fix their problems many more serious problems could prevail on the economy as a whole.
I think that the Russian economy should lower there inflation. It seems that they will be losing a lot of money. If the Russian economy were to take control of the high interest rate they will fall into patterns that the United States has been into. The problems will start to increase more if nothing is changing in the Russian economy.
It seems like it is a very hard time for Russia. Since the bank has chosen to raise the rate from 7 percent to 7.5 percent, I think this will cause more harm than good. There cause to cool down inflation may not just be the only reason behind it. I think Russia is going to have a hard time unless they figuring a more effective way in doing this, but nothing is predictable. They should do what they think is best, and if raising the rate is what they think will help, then they should do it. Obama will soon set up a conference call, and I think that will be beneficial as well. It is hard to say whether the Russian Economy can withstand the sanctions, but time will tell and if nothing crucial is to be done then they will definitely fall into a recession.
Russia is facing higher borrowing cost because their money is decreasing in value. This can hurt its economy more than what most expect because though inflation has a good chance of staying high, not being able to at least control interest rates and when they increase can cause a high economic lost. Though the bank sees is as a "cool inflation" there are many who are dramatically effected by this .05%. Unless the Russians find a way to control the increases in interest and perhaps paying higher wages, they could withstand the sanctions.
Russia's economy has taken a blow due to their recent increase in interest rates. The government's reason for this is to improve their currency which seems unlikely for the near future. The rubble, Russia's main currency, is the second weakest performing currency this year. Not to mention their standstill with Ukraine has also caused a dent in their economy. Russia's capital outflows had already been over $50 billion in the beginning of the year and are predicted to reach up to $200 billion by the end of the year. I think this is a bad move on Russia's part because it might easily harm their market which many companies say they wouldn't invest in.
Russia's economic problems seem to be a continuous trend. After the central bank of Russia has raised the interest rate, more problems have sparked. It has caused the borrowing costs from the bank to increase and therefore cause less investment in the bank. This could potentially bring Russia to a recession. Lower interest rates seem like a good decision for the bank at this point. The bank needs to encourage more investors to fix this serious problem.
I am not sure the the .5% increase in the interest rate will "cool down" inflation enough for them not to go into a recession. I feel like it can be a good idea but if they are in danger with other aspects such as western sanctions and production I feel like this is not the only thing they should do to fix it but they should be doing other things to help matters and try to control the inflation should be their top priority.
Russia continues to experience economic problems; sadly, there are no improvements. The central bank has chosen to raise the interest rate from 7% to 7.5% claiming it is a "cool inflation, potentially leading the country towards recession. Currently, the inflation is too high, and in result they need to stop paying wages that surpasses the level of productivity. The inflation rate needs to be controlled, otherwise, there is a possibility of other sanctions that will be coming their way. Obama is taking action by setting up a conference call in the near future to talk about the sanctions.
In my opinion the fact that the bank has selected to increase the rate from 7 percent to 7.5 percent will cause have more of a negative effect rather then positive harm than good. For starters Russia is currently paying wages that are above the productivity level. In addition Russia is also facing problems with sanctions, which also need to be allocated with. But my thoughts are that Russia’s priority right now should focus on the regaining stability with their inflation being that inflation is the root or their issue, and from then on work their way out to the micro issues.
Russia is now facing a lot of financial problems. Interest rate is getting higher and so is inflation. US Government is planning sanctions that target the Russian officials and businessmen close to the President Vladimir Putin, and the Russian industries as well. It is hoped that Russia will be stronger with the sanctions. It is hoped that it will give incentive to reduce the outside dependence and make the economy more self-sufficient. I believe Russia will actually be able withstand the sanctions and survive being excluded for good while. However, the questions is until when do we want to keep penalizing Russia?
The Russian Central Bank has raised interest rates. Inflation has also increased in Rusia. The borrowing rate in Rusia has increased by .5%. I feel this will hurt the Russian economy. This will deter many from investing in the Russian Economy. The. Wage rate in Rusia is growing ahead of its productivity. All of this above I feel will lead to Russia ' s expensive doom. The U.S. government is planning sanctions on Russian Officials. This is being done in hopes to strengthen the Russian Economy and help them to become more self sufficient.
Russia seems to be taking slow but steady steps toward recession because they can not account for the western sanctions of the banks. The banks in Russia are continuing an uproar of interest for all people that are borrowing money at interest rates at about 7.5%. This high rate was a second increase since march as the banks went against there word of lowering interest it actually increased. Russia needs to gain control of the rate of inflation in their economy, if not the expected debt is supposed to be $200 billion and they will fall far in the hole of debt.
I think that Russia needs to find some kind of solution to their economic issue and quickly. If their debt keeps rising then it be a disaster for its citizens.
The ruble is degrading rapidly and it is only a matter of time until it will lose all its value and become useless
As time go on we can clearly see that Russian growing economy is becoming a huge problem for the nation. And many people believe that Russia cannot get its self out of this whole. But many believe that they can survive with there banking system. Russian authorities may take a number of steps to increase the capitalization of the country's banking system due to sanctions.
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