Merkel calls Putin amid rouble fall

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Published: Wednesday 17th December 2014 by The News Editor

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German Chancellor Angela Merkel has called Russian President Vladimir Putin to discuss possible steps to secure a comprehensive ceasefire in eastern Ukraine.

The call came as Russia grappled with a sudden drop in its currency, the rouble. Moscow has accused the West of trying to inflict economic pain on Russia for political ends.

Ms Merkel’s office said the two leaders were joined by French President Francois Hollande and Ukrainian President Petro Poroshenko in the discussion.

It said they agreed on the need for increased humanitarian aid, including by Kiev, to separatist-controlled parts of the east of Ukraine.

Russia’s embattled rouble extended a week of catastrophic losses by dropping 4% at the opening of trading in Moscow today.

The world’s worst-performing currency along with the Ukrainian hryvnia, the rouble has lost more than 50% of its value this year.

The rouble has lost over 15% of its value this week alone, despite a massive interest rate hike by the Russian central bank yesterday.

“This is a very dangerous situation, we are just a few away from a full-blown run on the banks,” Russia’s leading business daily Vedomosti said in an editorial. “If one does not calm down the currency market right now, the banking system will need robust emergency care.”

The rouble has fallen sharply in recent weeks and is down more than 50% since January, due to sinking oil prices as well as the impact of Western sanctions imposed over Russia’s involvement in Ukraine.

The rouble’s fall was not reversed by the Central Bank’s dramatic decision to raise the rate to 17% from 10.5%.

The move was intended to make it more attractive for currency traders to hold on to their roubles. Doing so gives them a major return in comparison to many other currencies where interest rate returns are near 0%.

Other options available to the Russian authorities to stem the selling tide could be imposing capital controls or actual intervention in the markets – buying roubles, for example.

Russia’s economic development minister Alexei Ulyukayev yesterday denied that the government was considering imposing capital controls but said the rate hike came too late.

The Russian economy is set to shrink next week by 0.8% if oil prices stay above 80 dollars per barrel. With oil prices the way they are, below 60 dollars, the Russian economy could contract by up to 5%.

The rouble is likely to come under more pressure this week as President Barack Obama is expected to sign legislation authorising new economic sanctions on Moscow.

Russian officials, however, sought to project a message of confidence on state television, dwelling on the advantages of rouble devaluation, such as a boost to domestic manufacturing.

Published: Wednesday 17th December 2014 by The News Editor

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