Russia says ruble crisis over as reserves dive, inflation climbs

Thu Dec 25, 2014 9:22am EST
 
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By Elena Fabrichnaya and Alexander Winning

MOSCOW (Reuters) - Russia said on Thursday its currency crisis was over even though its forex reserves have plunged and annual inflation has climbed above 10 percent, adding to the problems facing the government as it fights its worst economic crisis since 1998.

The ruble plunged to all-time lows last week on heavy falls in the price of oil, the backbone of the Russian economy, and Western sanctions over the Ukraine crisis that made it near impossible for Russian firms to borrow on Western markets.

But it has since rebounded sharply after authorities took steps to halt its slide and bring down inflation, which after years of stability threatens President Vladimir Putin's reputation for ensuring the country's prosperity.

Those measures included a hike in interest rates to 17 percent from 10.5 percent, curbs on grain exports and informal capital controls.

"The key rate was raised in order to stabilize the situation on the currency market. ... That period has already, in our opinion, passed. The rouble is now strengthening," Finance Minister Anton Siluanov told the upper house of parliament on Thursday.

He added that interest rates would be lowered if the situation remained stable.

Standard & Poor's credit ratings agency said this week it could downgrade Russia to junk as soon as January due to a rapid deterioration in "monetary flexibility".

Keen to avert a downgrade, Russia said it had started talks with ratings agencies to explain the government's actions. Siluanov said the budget deficit next year would be "significantly more" than the 0.6 percent of gross domestic product originally planned.   Continued...

 
An employee counts Russian ruble banknotes at a private company's office in Krasnoyarsk, Siberia, December 17, 2014. REUTERS/Ilya Naymushin