Value of rouble plummets again as Russian economy has started shrinking | Business News

Value of rouble plummets again as Russian economy has started shrinking

29 Dec 2014 | Author: | No comments yet »

Ruble Drops 7 Percent As Russian Economy Shrinks.

MOSCOW (AP) — The Russian currency extended its losses on Monday after a report showed the economy has started shrinking in annual terms for the first time since 2009 as the country is buffeted by falling oil prices and Western sanctions.Gross domestic product shrank by 0.5 per cent in November compared to the same month last year, the economy ministry said on Monday, as Russia’s currency resumed its slide, which had been halted with a series of robust government support measures over the previous 10 days.

Russia’s economy had its first decline since October 2009 last month as manufacturing and investment shrank amid the ruble’s worst rout in a decade. The ruble has been one of the world’s worst performing currencies this year and was down another 5 percent on Monday, trading at 56 rubles per dollar in early afternoon in Moscow, wiping off some of the gains it made last week.

The economy of the world’s biggest energy exporter is facing its first recession since 2009 next year as oil, trading near a five-year low, and sanctions imposed over Ukraine pushed Russia into its biggest currency crisis since 1998. The slide on the oil market accelerated this month after the exporters’ group OPEC refused to cut output, and prices are down almost 50 per cent from a peak in June. After Moscow’s annexation of Crimea and its support for the separatist war in eastern Ukraine triggered western sanctions which virtually exclude Russian banks and corporates from international capital markets, economists repeatedly predicted that the country would slide into recession this year.

With oil prices at $60 a barrel, the economy may contract about 4 percent next year, according to Finance Minister Anton Siluanov. “A sharp slowdown in manufacturing had the main negative effect on GDP dynamics in November,” the ministry said in the statement. The Central Bank in past weeks raised its key interest rate to 17 percent and said it will offer dollar and euro loans to banks so they can help major exporters that need foreign currencies to finance operations. There is no cause for optimism,” said Dmitry Polevoy, chief economist for Russia and CIS at ING Bank in Moscow. “This is linked to sanctions first of all, oil and the panic we saw on the market in December. The Russia Manufacturing Purchasing Manager’s Index fell to 48.9 in December, the lowest since May, from 51.7 in November, according to a report released today by HSBC Holdings Plc (HSBA) and Markit Economics.

Many Russian companies and banks have been locked out of Western capital markets following the sanctions imposed on the country for its involvement in Ukraine. Overall the ruble’s weakness will inevitably lead to higher inflation next year by pushing up the cost of imports, threatening President Vladimir Putin’s reputation for ensuring Russia’s prosperity. Prime Minister Dmitry Medvedev told a government session that he has just signed a decree to provide a total of 1 trillion rubles ($19.6 billion) to Russian banks. Government ministries forecast the slump in oil prices will lead to a 4 per cent contraction of the economy next year and that inflation could exceed 10 per cent. The list of the banks and the amount that each of them will receive is expected drawn up by mid-January, according to Deputy Prime Minister Igor Shuvalov.

The ruble had lost more than half of its value at one stage in December, although it has recovered since then after the government introduced informal capital controls and raised interest rates steeply. Shuvalov said the measures should help “the banking sector be more stable in the new circumstances and safeguard it from new shocks if they do occur,” he was quoted by Tass. The government issued orders to large state-controlled oil and gas exporters Gazprom and Rosneft to sell some of their dollar revenues to shore up the ruble. On Friday, Russian authorities also significantly scaled up rescue funds for Trust Bank, saying they would provide up to $2.4 billion in loans to bail out the mid-sized lender, the first bank to fall victim to the crisis.

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