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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

Friday, Oct. 24


SPIBA’s ongoing “Breakfast with the Director” series continues today, featuring Tomas Hajek, Managing Director of the Northwest Division at Danone Russia. Hajek will be discussing collaborations between businesses from different cultures. The meeting is at 9 a.m. at the Domina Prestige St. Petersburg hotel and all who wish to attend must confirm their participation by Oct. 23.


Get your gong on at “Sounds of the Universe,” a concert at the city planetarium this evening incorporating six different gongs to create relaxing songs that will transport you upwards into the stratosphere. Tickets are 700 rubles ($17).



Saturday, Oct. 25


AVA Expo, the eighth edition of the event revolving around all things pop culture, returns to Lenexpo this weekend. Geeks, nerds, dweebs and dorks will have their chance to talk science fiction and explore a variety of international pop culture. Tickets for the event can be purchased on their website at avaexpo.ru.



Sunday, Oct. 26


Zenit St. Petersburg returns home for the first time in nearly a month as they host Mordovia Saransk in a Russian Premier League game. Currently at the top of the league thanks to their undefeated start to the season, the northern club hopes to extend the gap between them and second-place CSKA Moscow and win the title for the first time in three years. Tickets are available at the stadium box office or on the club’s website.



Monday, Oct. 27


Today marks the end of the art exhibit “Neophobia” at the Erarta Museum. Artists Alexey Semichov and Andrei Kuzmin took a neo-modernist approach to represent the array of fears that are ever-present throughout our lives. Tickets are 200 rubles ($4.90).



Tuesday, Oct. 28


The Domina Prestige St. Petersburg hotel plays host to SPIBA’s Marketing and Communications Committee’s round table discussion on “Government Relations Practices in Russia” this morning. The discussion starts at 9:30 a.m. and participation must be confirmed by Oct. 24.



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