Saturday

9th Dec 2023

Russian rouble in free fall over oil price, EU sanctions

  • It is the highest interest rate increase since 1998 (Photo: Alex F)

In a surprise announcement on Monday (15 December), the Russian central bank said it would raise its key interest rate to 17 percent from 10.5 percent.

The move is aimed at shoring up the tumbling currency as the Russian economy feels the pain of a low oil price - oil and gas are Russia's main exports - combined with US and EU sanctions over Russian involvement in the Ukrainian war.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

It is the highest interest rate increase since 1998, when the Russian currency collapsed and the government defaulted on its debt, sending ripples throughout financial markets around the world.

“This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks,” the central bank said in a statement after its impromptu meeting.

The rouble lost 9.7 percent to 64.4 per US dollar on Monday alone, after having slid almost 50 percent this year in comparison to the dollar. One euro now buys 77 roubles, compared to 45 roubles in January.

About half of Russia's budget revenues come from oil and gas taxes and a quarter of its GDP is linked to the energy industry.

With the oil price having started to fall from above 100 US dollars a barrel in June to 60 dollars now, Russia's economy is feeling the pinch. On top of this comes the closed access to EU and US capital markets as part of the joint sanctions.

The central bank in Moscow expects the economy to contract by 4.5 to 4.7 percent next year if oil prices remain this low.

With the US and its ally Saudi Arabia determining the oil price, it is likely the squeeze will continue until Russian President Vladimir Putin reverses his course in Ukraine.

So far, he has kept a defiant stance and has offered amnesty to Russians who bring money - no matter how it was earned - back into their country.

Other forms of 'patriotic' support appear in hipster Moscow shops, with tshirts displaying the message "I support the rouble," as AP's Moscow correspondent has tweeted.

Spain's Nadia Calviño backed to be EIB's first female chief

With less than a month to go before the start of a new leadership of the European Investment Bank, the world's largest multilateral lender, the path seems finally clear for one of the candidates, Spanish finance minister Nadia Calviño.

Analysis

Is there hope for the EU and eurozone?

While some strengths may have been overlooked recently, leading to a more pessimistic outlook on the EU and the euro area than the truly deserve, are there reasons for optimism?

Latest News

  1. How Moldova is trying to control tuberculosis
  2. Many problems to solve in Dubai — honesty about them is good
  3. Sudanese fleeing violence find no haven in Egypt or EU
  4. How should EU reform the humanitarian aid system?
  5. EU suggests visa-bans on Israeli settlers, following US example
  6. EU ministers prepare for all-night fiscal debate
  7. Spain's Nadia Calviño backed to be EIB's first female chief
  8. Is there hope for the EU and eurozone?

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Join EUobserver

Support quality EU news

Join us