A free-falling Russian ruble Tuesday prompted fears that the nuclear-armed nation could be entering a deep economic recession with the potential for unrest, as citizens and investors try to get their hands on cash amid crippling international sanctions and sinking oil prices.
The Russian central bank tried to right the ship with a surprisingly large interest rate hike, to 17 percent, before the nation’s financial markets opened Tuesday. But it was for naught as the already limping ruble fell another 20 percent against the U.S. dollar.
“What we’ve seen in the last few days is real financial panic,” said Anders Aslund, a Russia expert for the Peterson Institute for International Economics in Washington.
Problems in Russia circled the globe, with volatile trading in European financial markets and wild inter-day swings on Wall Street. Blue chips on the Dow Jones industrial average were up 155 points at midday before swinging to losses and closing down 111.9 points to 17,068.94.
The jump in Russian rates was designed to keep investors there from fleeing the country, sweetening their returns. Instead, investors shrugged it off and proceeded to head for the exits.
Russia is being hit by a double blow: falling oil prices and international economic sanctions levied in the wake of Russia’s moves into Ukraine.
Even before the extraordinary action on the ruble, the central bank had warned that if oil prices stay where they are today, in the range of $60 a barrel, the economy would contract sharply. Higher interest rates now further raise the cost of borrowing for Russian businesses, deepening the expected contraction.
“Nothing they do with monetary policy can help. If you have something that is fundamentally wrong, you can’t fix it with monetary policy,” said Aslund, who said Russian President Vladimir Putin must find a face-saving way to back out of his foray into the Ukraine and lift the sanctions.
Adding to the pressure, White House spokesman Josh Earnest confirmed Tuesday that President Barack Obama will sign this week a bill that imposes further sanctions on the Russian economy. Ultimately, he said, “it will be up to President Putin to decide whether or not the economic costs are worth it to him and are worth it to the Russian people.”