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Ruble Being Punished for Economy, Not Ukraine

Published: March 8, 2014 (Issue # 1800)


When a St. Petersburg Times reporter asked me in January about the likely direction of the ruble for the year, I stuck an old trader's finger in the wind and predicted it was headed to 37 rubles to the U.S. dollar. Well sure. For the year. But I never expected it to happen by March. Is it time to panic yet?

Monday saw the markets gunning for the ruble on the back of the Crimean crisis. From all the selling it seemed like the ruble isn't even worth a ruble anymore. The currency almost reached the 37 mark before the Central Bank began to intervene.

Related: Economist Advises Russians to Dump Ruble, Buy Hard Currency

Monday's market turmoil was just a hyperextension of a trend that has been gathering steam for some time.

The Central Bank intervened in two ways. It sold nearly $10 billion, buying rubles, to drive the price back to 36.5 to the dollar. This had the effect of stopping the momentary panic that had developed. But before doing that, the bank raised the base interest rate by 1.5 percent. "Smart money" calls this "150 basis points." Whatever you call it, this was a really large interest rate jump for one day.

Related: Ruble and Stocks Tumble on Ukraine Turmoil

The intuition behind this decision was that if you offer a high enough yield, people will sell the currently low-earning currency and buy it at a higher yield. In calm markets this sort of measure will work on only a one-fourth percent, or 25 basis points, increase. Here the Central Bank bumped up rates by six times that amount and, surprisingly, that did not work to brake the ruble's skid.

Like any smart financial guy, I keep a large amount of my money in the currency where I live — Russia. So what happened to my rubles?

Fear and pain following Russia's military intervention in Ukraine last weekend is obviously a factor. Clearly some market players were expecting some sort of backlash from the world regarding Russia's moves. There was the usual talk of U.S. sanctions, presumably to fall on Russian state banks. When it comes to financial sanctions, it is hard to dream up a government player more scary and dangerous than Uncle Sam, and any action against Russia could leave a lot of folks high and dry. Naturally, smart guys would buy dollars and move them out if they feared sanctions, thus contributing to flush the ruble out. But this is not sufficient to explain the crash.

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ALL ABOUT TOWN

Thursday, Oct. 30


Dental-Expo St. Petersburg 2014 concludes today at Lenexpo. Welcoming specialists from throughout the federation, the forum is an opportunity for dentists to share tricks of the trade and peruse the most recent innovations in technology and equipment, with over 100 companies hocking their wares at the event.



Friday, Oct. 31


Put your grammar and logical thinking to the test in a fun and friendly environment during the British Book Center’s Board Game Evening starting at 5 p.m. today. The event is free and all are welcome to attend.



Saturday, Nov. 1


The men and women who dedicate their lives to fitness get their chance to compete for the title of best body in Russia at today’s Grand Prix Fitness House PRO, the nation’s premier bodybuilding competition. Not only will men and women be competing for thousands of dollars in prizes and a trip to represent their nation at Mr. Olympia but sporting goods and nutritional supplements will also be available for sale. Learn more about the culture of the Indian subcontinent during Diwali, the annual festival of lights that will be celebrated in St. Petersburg this weekend at the Culture Palace on Tambovskaya Ul. For 100 rubles ($2.40), festival-goers listen to Indian music, try on traditional Indian outfits and sample dishes highlighting the culinary diversity of the billion-plus people in the South Asian superpower.



Sunday, Nov. 2


Check out the latest video and interactive games at the Gaming Festival at the Mayakovsky Library ending today. Meet with the developers of the popular and learn more about their work, or learn how to play one of their creations with the opportunity to ask the creators themselves about the exact rules.



Monday, Nov. 3


Non-athletes can get feed their need for competition without breaking a sweat at the Rock-Paper-Scissors tournament this evening at the Cube Bar at Lomonosova 1. Referees will judge the validity of each matchup award points to winners while the city’s elite fight for the chance to be called the best of the best. Those hoping to play must arrange a team beforehand and pay 200 rubles ($4.80) to enter.



Tuesday, Nov. 4


Attend the premiere of Canadian director Xavier Dolan’s latest film “Mommy” at the Avrora theater this evening. The fifth picture from the 25-year-old, it is the story of an unruly teenager but the most alluring (or unappealing) aspect is the way the film was shot: in a 1:1 format that is more reminiscent of Instagram videos than cinematic art. Tickets cost 400 rubles ($9.60) and snacks and drinks will be available.



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