Update: Russia’s ruble extended losses in afternoon trading on Tuesday, moving first beyond 69 rubles to the dollar and then beyond 73 ones to the dollar for the first time, Reuters reports. At 08:08 EST, the rouble was around 6.8 percent weaker than the previous close against the dollar on the Moscow Exchange at 73.25 rubles per dollar.
Russia’s central bank said on Tuesday it did not plan to implement ‘any kind’ of capital controls, after a news report saying the bank was considering such controls sent the rouble plunging to a new all-time against a dollar-euro basket.
“The CBR action is failing… no one is positioned for this,” writes CNBC’s Matt Clinch. “This will impart huge short term damage to Russia – there is now a huge credibility gap for Russian policy makers in the eyes of the market,” Timothy Ash, head of emerging markets research at Standard Bank, wrote in a research note.
The head of Russia’s central bank, Elvira Nabiullina, said on December 16 that the ruble is “undervalued” but that it “needs time to reach its fundamental rate.” She added the “rather difficult situation” calls for “coordinated actions” by the government and the central bank. She said that bank should be involved in preparing tax and tariff policies in order to combat inflation.
The 12% plunge in the Russian ruble in a single day on Monday, December 15th, 2014, forced the Russian central bank to increase the one-week repo rate by 650 basis points to 17% taking the total increase in the benchmark interest rate this year to 11.5%.
The ruble reacted to the central bank move rebounding from the record low of 66 versus us dollar touched on Monday by 10% to 60 versus us dollar. The hike is the highest since the 1998 default and the sixth this year after the central bank spent more than $80 billion of its reserves to stop the free fall in the ruble.
“Rising prices will hurt the lives of all Russians and they could either bolster Putin’s position or make it harder for him to stay in power,” writes Forbes’ Marcel Michelson. “In that sense, recent remarks by Russian officials that the West is trying to topple Putin can be understood.”
He continues: “However, there is no obvious candidate to replace Putin and a return of Dmitry Medvedev, or the appointment of someone else from within the Kremlin circles, would not change the country’s policies in a drastic way.”
The slide in oil prices and the economic and trade sanctions imposed by the West on Russia for its role in Ukraine are behind the sharp depreciation in the currency leading to inflationary pressures in a big way.
The decision by the Organisation of Petroleum Exporting Countries (OPEC) not to cut oil output against the interest of Russia and some others in the group aided the plunge in the commodity which has been battered by weak demand outlook despite relatively higher supply.
Virtual currency Bitcoin has been called the worst investment of 2014 after its price dropped by over 50% during the last 12 months. The unenviable title has been bestowed on the world’s best known and most valuable cryptocurrency by the business website Quartz, which compared the dollar price of bitcoin at the beginning of 2014 to its current value, saying it has declined by 52%.
However, if you take into account that bitcoin was trading at over $1,160 in December last year, the fall to its current value of around $330 is even more dramatic.
The title of worst investment of 2014 is given more weight when you consider the huge price drop seen in the price of Russian rouble today. Considering the on-going issues in Russia in the last 24 hours, Bitcoin could potentially lose its title before the end of this week.