Falling oil prices have sparked a panic in Russia as the ruble slides, the economy slumps and banks scramble for cash. That’s prompting Russians to pull their money out of the country and foreign investors to reappraise plans for an economy that, according to the nation’s monetary authority, may contract 5% next year if oil prices stay around $60 a barrel.
“There are ripple effects,” said Eric Chaney, chief economist at AXA in Paris. “If there is a deep recession in Russia, it’s not good news for European banks, not good news for some luxury-goods makers who used to sell in Russia.”
The country that last year accounted for 6.9% of goods exports from the EU is threatening to hurt the region’s companies and markets as a flood of rubles risks driving up currencies and assets seen as the safest.
The Swiss National Bank became Europe’s first institution to take action to protect the country’s currency from the threat. Its president, Thomas Jordan cited the Russian turmoil as a “major contributing factor” for the decision to introduce a charge of 0.25% on sight deposits
“Over the past few days, a number of factors have prompted increased demand for safe investments,” the SNB said. “The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”
The ruble has dropped more than 40% since June as oil trades near a five-year low and sanctions against Russian incursions into Ukraine hit the economy.
Russian efforts to stem the crisis have done little to bolster its currency. On Tuesday,the Russian central bank announced the largest interest rate increase since Russia’s 1998 default, taking the key rate up by 6.5 percentage points to 17%. The ruble, which hit a low of 80 per dollar, from 34 half a year ago, rebounded more than 12% yesterday after the Finance Ministry pledged to use as much as €5.7bn to support the currency.
The turmoil is seeping into Europe’s companies.
Cartier was closed for business on Moscow’s upscale Petrovka St yesterday as shop assistants applied higher prices to the luxury jewellery to reflect the ruble’s slide. Retailers including Apple, Renault and McDonald’s have had to raise prices to offset the drop in the value of their sales in rubles.