Since 2014, the Russian rouble slides have been in decline. The reasons for this are manifold but can be boiled down to a few key points. This blog post will explore the main reasons for the Russian rouble’s decline and what this means for the Russian economy. ### Topic: 5 Must-Read Books on Business Strategy Intro: Business strategy is one of the most important aspects of running a successful company. But with so many books on the subject, it can be hard to know where to start.
Geopolitical tensions between Russia and the West
The current geopolitical tensions between Russia and the West are largely due to the ongoing conflict in Ukraine. Since 2014, Russia has been accused of annexing Crimea and supporting pro-Russian separatists in eastern Ukraine. These actions have led to Western sanctions against Russia, which have severely damaged the Russian economy. In addition, Russia’s intervention in Syria has also caused tension with the West.
Russia’s actions in Ukraine and Syria have made it clear that it is not content with simply being a regional power; it wants to be a global player again. This has led to increased competition and tensions between Russia and the West.
The fall in oil prices
When oil prices collapsed in the second half of 2014, the Russian rouble went with it. By December, the currency had lost nearly 50% of its value against the US dollar.
The fall in oil prices was the main driver of the rouble’s decline. Russia is a major oil producer and export earner; energy revenues account for around 50% of the government’s total budget revenues. So when the price of oil falls, does the value of the rouble?
There are a couple of other factors that also contributed to the rouble’s decline. Firstly, Western sanctions imposed on Russia over its involvement in Ukraine have made it difficult for Russian companies to access international capital markets. This has put further downward pressure on the rouble.
Secondly, falling inflation expectations have made people increasingly reluctant to hold onto rouble, as they expect their spending power to decline over time. The central bank has raised interest rates in an attempt to shore up confidence in the currency, but this has only added to concerns about Russia’s economic slowdown.
In short, falling oil prices and Western sanctions are putting immense pressure on the Russian rouble. And with no end in sight to either problem, it seems likely that further declines are still to come.
Sanctions against Russia
In recent years, the Russian rouble has come under pressure from a variety of sanctions imposed by Western countries. These sanctions have been in response to Russia’s actions in Ukraine, as well as its alleged involvement in cyber-attacks and meddling in foreign elections.
The most recent round of sanctions came in April 2018, when the US imposed sanctions on several Russian oligarchs and government officials. This caused a sharp sell-off in the rouble, which lost around 10% of its value against the US dollar.
These sanctions have made it difficult for Russia to access international capital markets, and have also led to a flight of foreign investment from the country. As a result, the Russian economy has slowed sharply in recent years, with GDP growth falling from around 4% per year in 2014 to just 1.5% in 2017.
Looking ahead, it is unclear how long these sanctions will remain in place. However, they are likely to continue to weigh on the Russian rouble and economy for some time to come.
The strengthening of the US dollar
Since the start of 2016, the rouble has fallen by almost a fifth against the dollar. This is despite Russia’s central bank hiking interest rates to 17% in an attempt to support the currency. So what’s behind the rouble’s decline?
One key factor is the strengthening of the US dollar. The dollar has been on a tear since Donald Trump was elected president, rising to its highest level in more than 14 years. A stronger dollar makes it more expensive for Russians to buy imported goods, which puts downward pressure on the rouble.
Another factor weighing on the rouble is falling oil prices. Oil is Russia’s main export and so declining prices hit government revenues and corporate profits. This reduces demand for the rouble, putting further downward pressure on the currency.
The combination of a strong dollar and weak oil prices looks set to continue putting pressure on the rouble in the months ahead.
The Russian Central Bank’s response
The Russian Central Bank has been gradually losing control over the rouble as the currency continues its slide against the US dollar and euro.
On Tuesday, the bank was forced to intervene in the market for the first time in two months, selling $US500 million ($A680 million) to prop up the rouble.
It is a sign that the bank is running out of options to stem the rouble’s decline, which has gathered pace in recent weeks on falling oil prices and Western sanctions over Ukraine.
The bank has spent more than $US80 billion this year defending the rouble, but so far it has failed to prevent a 15 percent drop in its value against the dollar.
Some analysts say the only way to stop the rot is for Russia to raise interest rates sharply, which would be painful for an economy already heading for a recession.
What does this mean for the Russian economy?
The Russian rouble has been sliding in value against the US dollar and the euro since 2014 when Western sanctions were imposed on the country over its annexation of Crimea.
The slide accelerated in April this year after the US announced fresh sanctions in response to Russia’s alleged meddling in the 2016 US presidential election.
The rouble is now worth less than 63 to the dollar, down from around 30 just four years ago.
So what does this mean for Russia’s economy?
Well, for starters, it means that imported goods are now much more expensive. This is because most international trade is done in dollars, so when the rouble falls in value, it takes more roubles to buy the same amount of dollars.
This means that Russians are likely to cut back on their spending on imported goods, which will hurt businesses that rely on importing goods or raw materials from abroad.
It also means that foreign investors are likely to be put off by the higher risks associated with investing in Russia. And that could lead to a further slowdown in an already struggling economy.
Conclusion
The Russian rouble has been sliding for several reasons, including lower oil prices, Western sanctions, and a strengthening US dollar. This has caused problems for the Russian economy, with inflation rising and the central bank having to raise interest rates. However, there are also some positive aspects to the situation, such as cheaper imported goods and increased tourism. Ultimately, only time will tell how much further the rouble will slide.
