Russian Ruble Currency Crisis: What happened last 24 hours?
Russian Ruble crashes despite Central Bank efforts
1. USDRUB trades between 57.50 and 77.914 or 35% depreciation against the US Dollar in one day.
2.Bank of Russia raises interest rates from 10.5% to 17% in one day. This is the second raise in one week. Last Thursday, the central bank raised rates from 8% to 10.5%.
From Bank of Russia press service “On Bank of Russia key rate and other measures“
From 16 December 2014 the Bank of Russia Board of Directors decided to raise the Bank of Russia key rate to 17.00 percent per annum. This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks.
The Central Bank of Russia has increased its key interest rate to 17 percent in order to curb the inflation risks and rapid devaluation of the national currency, which hit a historic low of 64 rubles against the US dollar in Monday evening trading.
The decision followed a 10 percent drop in the value of Russia’s ruble on Monday, the biggest intraday drop since 1999. After the hike, the ruble strengthened 11 percent settling closer to 60 per USD and 67 against the euro, bringing its total year-to-date loss to more than 50 percent.
In the meantime excerpts from Zerohedge
In the most ironic twist of all amid the “currency crisis” enveloping Russia, we suspect the world’s central bankers will be looking on jealously as The CBR manages to achieve precisely what The BoJ and The Fed are desperate to achieve. In raising inflation expectations, The FT reports, Russians are hurriedly turning their depreciating Rubles into jewelry, furniture, cars, and apartments as the currency’s collapse prompts a shopping spree that will likely lead to a surge in GDP. As one anxious shopper noted, “none of us know what’s happening. We’re all worried that the currency will keep falling,” and so “it’s time to buy furniture!” And sure enough, shopping centers are currently experiencing a spectacular rush.
This reminds me of an article I wrote once upon a time “Why should individuals invest in foreign currency?”
I had the chance to visit Bangkok in Thailand during the Asian Financial Crisis in 1998. The exchange rate between the Singapore Dollar and the Thai Baht moved from a stable pre-crisis rate of around 1 Singapore Dollar to 16 Baht to crisis rate of 24 Baht. Against the Singapore Dollar, the Thai individuals experienced a loss of purchasing power by 50%. It meant also destruction of the real value of cash assets. What happened when I moved around in the city? Thai businesses I encountered asked me to make my payments in Singapore Dollar. The Singapore Dollar (an investment in a foreign currency to Thais) was a lot sexier to hold on to in a crisis.
I strongly encourage readers to consider keeping a diversified basket of currencies for such a contingency. And although it is quite unthinkable, Russians certainly did not expect 6 months ago that this would happen. And as a reminder, the Asian Financial Crisis was also a currency crisis.