High Rates, Volatile Rouble Increase Risks to Russia’s Economy, Fitch Says

World » RUSSIA | December 18, 2014, Thursday // 17:30
Bulgaria: High Rates, Volatile Rouble Increase Risks to Russia’s Economy, Fitch Says

The recent jump in Russia’s interest rates, the weakening of the rouble and falling oil prices have increased risks to Russia’s economy, Fitch Ratings said on Thursday.

The increase in Russia's central bank key lending rate to 17% from 10.5% “will deepen the severity of the recession in Russia, while oil prices present downside risks,” the global rating agency said in a statement.

According to Fitch’s calculations made before Tuesday’s rate hike, “if the oil price averaged around USD 66/b next year … Russia could experience a real GDP contraction of about 2.8%.”

Benchmark Brent crude oil rose 2.5% to USD 62.77 a barrel in London on Thursday after Saudi Arabia’s oil minister Ali al-Naimi described the recent price rout as temporary. In an interview with the Saudi Press Agency he said oil demand will rise as the global economy improves but reiterated his position that OPEC won’t cut production.

Fitch also said that “the inflationary impact of recent falls in the rouble “will erode real incomes, further damaging private consumption and domestic demand.”

If Russia’s central bank has to keep rates high or raise them further to support the rouble at a lower oil price, “the impact could be greater still”.

According to estimates of Russia’s central bank,average oil prices of USD 60 a barrel could lead to a decline of 4.5%-4.7% in the country’s gross domestic product next year.

The rate hike “suggests the authorities remain committed to addressing the rouble's decline via orthodox methods, and Russia's Prime Minister and Economy Minister have reiterated that capital controls will not be introduced,” said Fitch.

On Thursday, Russia’s President Vladimir Putin also said that attempts to support the rouble by administrative means would be counterproductive.

However, “very high exchange-rate volatility and possible demand for dollars from Russian households or corporates would keep pressure on Russia's policy framework, increasing the risk of some kind of capital controls to avert a currency crisis,” Fitch opined.

We need your support so Novinite.com can keep delivering news and information about Bulgaria! Thank you!

Russia » Be a reporter: Write and send your article
Tags: Fitch, Russia, rouble, rate, oil price, capital controls, Putin, OPEC

Advertisement
Advertisement
Bulgaria news Novinite.com (Sofia News Agency - www.sofianewsagency.com) is unique with being a real time news provider in English that informs its readers about the latest Bulgarian news. The editorial staff also publishes a daily online newspaper "Sofia Morning News." Novinite.com (Sofia News Agency - www.sofianewsagency.com) and Sofia Morning News publish the latest economic, political and cultural news that take place in Bulgaria. Foreign media analysis on Bulgaria and World News in Brief are also part of the web site and the online newspaper. News Bulgaria