Russia: Currency crisis over, but inflation set to soar

Recovery made after capital controls and curbs on exports

MOSCOW: Russia has said that its currency crisis is over but warned that inflation is set to climb above 10%.The rouble plunged to all-time lows last week on heavy falls in the price of oil, the backbone of 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 the slide and bring down inflation.

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

“The key rate was raised in order to stabilise 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 .

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

Standard & Poor’s credit rating 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% of gross domestic product originally planned.

Published in The Express Tribune, December 26^th,  2014.

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