Russia paying high cost for propping up the ruble

Russian policymakers are signalling that they are prepared to sacrifice economic growth in order to stabilise the ruble.

The Bank of Russia raised its benchmark interest rate by the most in 16 years last week and created a money-market cash squeeze, helping the ruble strengthen 45% from a record low on December 16. The consequence of this means the oil producer’s economy may shrink 7.9% in 2015, Danske Bank said, revising a view for a 1.8% contraction.

“We’re seeing a serious monetary shock, especially next year,” said Vladimir Miklashevsky, a strategist at Danske. “What they’ve done is more serious for the economy than falling oil, it’s a big negative factor.”