[As it appears, the steep decline in Russian Rouble is primarily triggered by the crash in global oil market - the price of oil has slid below $60 a barrel for the first time since 2009, while the (serial) sanctions imposed by the US and the EU in response to Russia's ongoing conflicts with neighbouring Ukraine - including annexation of Crimea and support for the rebels in south-east Ukraine, has also conceivably contributed.
But the global (capitalist) economy being an interconnected entity, it has caused reverberations also elsewhere - the stock market in India has crashed, the Rupee has slid down. If the Russian economy eventually goes into a tailspin, it may cause quite unanticipated effects globally. One should not be too surprised.] I/IV. http://firstbiz.firstpost.com/economy/fiis-exit-russia-lock-stock-and-barrel-india-can-learn-from-the-rouble-crash-113641.html ECONOMY <http://firstbiz.firstpost.com/category/economy> Dec 17, 2014 FIIs exit Russia lock, stock and barrel: India can learn from the Rouble crash By Vivek Kaul <http://firstbiz.firstpost.com/author/vivekkaul> The Russian rouble has been in trouble of late. The value of the currency crashed from 55 roubles to a dollar as on December 11, 2014, to nearly 73 roubles to a dollar as on December 16, 2014. Since then the currency has recovered a little and as I write this around 67 roubles are worth a dollar. What caused this? A major reason for this has been the fall in the price of oil by 50 percent in the last six months. As I write this the Brent crude Oil quotes at slightly less than $60 to a barrel. The Brent crude price dropped below $60 per barrel only this week. The Russian government is majorly dependent on revenues from oil to meet its expenditure. The money that comes in from oil contributes around half of the revenues of the government and makes up for two-thirds of the exports. As The Economist points out <http://www.economist.com/node/21636720>: “The state owns big stakes in many energy firms, as well as indirect links via the state-supported banks that fund them.” Given this excessive dependence on oil, Russia needs the price of oil to be in excess of $100 per barrel, for the government expenditure and income to be balanced. As Javed Mian writes in the Stray Reflections newsletter dated November 2014: “Today, Russia needs an oil price in excess of $100 a barrel to support the state and preserve its national security.” The Citigroup in a report puts the break-even cost of the Russian government budget <http://www.telegraph.co.uk/finance/oilprices/11263851/Saudis-risk-playing-with-fire-in-shale-price-showdown-as-crude-crashes.html> at an oil price of $105 per barrel. The oil price, as we know, is nowhere near that level. The rouble lost 10 percent against the dollar on December 15 and another 11 percent on December 16. Why did this happen? Foreign investors are exiting Russia lock, stock and barrel. The Russian central bank recently estimated that capital flight could touch $130 billion this year <http://www.telegraph.co.uk/finance/economics/11295402/Russian-crisis-turns-systemic-as-rouble-crashes-13pc.html> . The foreign investors are selling their investments in roubles and buying dollars, leading to an increase in demand for dollars vis a vis roubles. This has led to the value of the rouble crashing against the dollar. The Russian central bank has tried to stem this flow by buying the “excess” roubles being dumped on to the foreign exchange market and selling dollars. It is estimated that on December 15, 2014, it sold around $2 billion to buy roubles. But even this did not help prevent the worse rouble crash since 1998. This forced the Russian central bank to raise the interest rate by 650 basis points (one basis point is one hundredth of a percentage) to 17 percent. Despite this overnight manoeuvre, the rouble continued to crash against the dollar and fell by 11 percent on December 16. The Russian central bank has spent more than $80 billion in trying to defend the rouble against the dollar this year and is now left with reserves of around $416 billion. The question is will these reserves turn out to be enough? Russian companies and banks have an external debt of close to $700 billion. Of this around $30 billion is due this month and another $100 billion over the course of next year <http://www.telegraph.co.uk/finance/economics/11297770/Russia-risks-Soviet-style-collapse-as-rouble-defence-fails.html>, writes Ambrose Evans-Pritchard in The Telegraph. He also quotes Lubomir Mitov, from the Institute of International Finance, as saying that any fall in reserves below $330 billion could prove dangerous, given the scale of foreign debt and a confluence of pressures. “It is a perfect storm. Each $10 fall in the price of oil reduces export revenues by some 2 percent of GDP. A decline of this magnitude could shift the current account to a 3.5 percent deficit,” Mitov told Evans-Pritchard. This has implications for Russia on multiple fronts. With oil revenues falling, the Russian economy will contract in 2015. Before raising the interest rates to 17 percent, the Russian central bank had said that the economy could contract by 4.7 percent because of oil prices falling to $60 per barrel. Also, inflation which before this week's currency crisis was at 9.1 percent, could go up further. As The Economist points out: “Russian shopkeepers have started to re-price their goods daily. Less than two weeks ago one dollar could be bought with 52 roubles; on December 16th between 70 and 80 were needed. Shops defending their dollar income need a price rise of 50 percent to offset this.” Further, so much money leaving Russia in such quick time, the country may also have to think of implementing capital controls. The revenue projections of the Russian government have gone totally out of whack. The Financial Times reports <http://www.ft.com/intl/cms/s/0/15eb42e6-852e-11e4-ab4e-00144feabdc0.html#axzz3M8xFoKNf>that two weeks back, the Russian president Vladmir Putin, “ signed the federal budget for 2015-17 — which is still based on forecasts of 2.5 per cent annual gross domestic product growth, 5.5 percent inflation and oil at $96 a barrel.” These assumptions will have to junked. Putin might also might have to go slow on the aggressive military strategy that he has been following for a while now. As Mian points out: “Russia is the world’s 8th-largest economy, but its military spending trails only the US and China. Putin increased the military budget 31 percent from 2008 to 2013, overtaking UK and Saudi Arabia, as reported by the International Institute of Strategic Studies.” Whether this happens remains to be seen. Nevertheless, the Russian crisis has led to financial markets falling in large parts of the world. As I write this the BSE Sensex is quoting at around 26,700 points having fallen by around 1800 points over the last two weeks. So, what are the lessons in this for India? The first and foremost is that foreign investors can exit an economy at any point of time, once they finally start feeling that the economy is in trouble. They may not exit the equity market all at once but they can exit the debt market very quickly. This is something that India needs to keep in mind. From December 2013 up to December 15, 2014, the foreign institutional investors have invested Rs 1,63,523.08 crore (around $25.7 billion assuming $1=Rs63.6) in the Indian debt market. This is Rs 44,443 crore more than what they have invested in the stock market. Even if a part of the money invested the debt market starts to leave the country, the rupee will crash against the dollar. This is precisely what happened between June and November 2013 when foreign institutional investors sold debt worth Rs 78,382.2 crore. When they converted these rupees into dollars, the demand for dollars went up, leading to the rupee crashing and touching almost 70 to a dollar. It was at this point of time that Raghuram Rajan in various capacities, first as officer on special duty at the Reserve Bank of India (RBI) and later as RBI governor, helped stop the crash. This is a point that the finance minister Arun Jaitley needs to keep in mind and drop the habit of asking Rajan to cut interest rates, almost every time that he speaks in public. Rajan knows his job and its best to allow him and the RBI to do things as they deems fit. Further, Rajan and RBI are more cued into what is happening internationally than perhaps any of the politicians can ever be. Also, one reason that foreign institutional investors have invested so much money in the Indian debt market is because the returns on government debt are on the higher side vis a vis other countries. If the RBI were to cut the repo rate (or the rate at which it lends to banks) these returns will come down and this could possibly lead to the exit of some money invested by foreign investors in India's debt market. And that would not be good news on the rupee front. II/IV. http://www.vox.com/2014/12/16/7401705/oil-prices-falling Why oil prices keep falling — and throwing the world into turmoil Updated by Brad Plumer <http://www.vox.com/authors/brad-plumer> on December 16, 2014, 4:40 p.m. ET The plummeting price of oil is the biggest energy story in the world right now. It's bringing back cheap gasoline to the United States while wreaking havoc on oil-producing countries like Russia and Venezuela. But *why* does the price of oil keep falling? Back in June, the price of Brent crude was up around $115 per barrel. By mid-December, it had fallen nearly in half, down to $59 per barrel <http://www.nasdaq.com/markets/crude-oil-brent.aspx?timeframe=10y>: [image: (Joss Fong/Vox)] (Joss Fong/Vox) The short version of the story goes like this: For much of the past decade, oil prices were high — bouncing around $100 per barrel since 2010 — because of soaring oil consumption in countries like China and conflicts in key oil nations like Libya. Oil production couldn't keep up with demand, so prices spiked. But beneath the surface, many of those dynamics were rapidly shifting. High prices spurred companies in the US and Canada to start drilling for new, hard-to-extract crude <http://www.vox.com/2014/10/2/6892781/how-the-oil-and-gas-boom-is-changing-america> in North Dakota's shale formations and Alberta's oil sands. At the same time, demand for oil in places like Europe, Asia, and the US began tapering off, thanks to weakening economies and new efficiency measures. On top of that, the conflict in Libya was slowly easing. By late 2014, world oil supply was on track to rise much higher than actual demand, as the chart below from the International Energy Agency <https://www.iea.org/oilmarketreport/omrpublic/> shows. And, in September, prices started falling sharply. [image: (International Energy Agency)] (International Energy Agency <https://www.iea.org/oilmarketreport/omrpublic/>) As prices slid, many observers waited to see whether OPEC, the world's largest oil cartel, would cut back on its production to prop prices up. (Many OPEC states, like Saudi Arabia and Iran, need high prices to balance their budgets.) But at its big meeting in November, OPEC did nothing <http://www.vox.com/2014/11/28/7302827/oil-prices-opec>. Saudi Arabia didn't want to give up market share, and it hoped that lower prices would help throttle the US oil boom. That was a surprise. So oil went into free-fall. The oil price crash is now upending the global economy, with ramifications for every country in the world <http://www.ft.com/cms/s/2/3f5e4914-8490-11e4-ba4f-00144feabdc0.html#axzz3M0pu7m13>. Low prices are excellent news for oil consumers in Japan and the US, where gasoline is the cheapest it's been in years. But it's a different story for countries reliant on oil sales. Russia's economy is imploding <http://www.vox.com/2014/12/16/7401401/ruble-collapse-interest-rates>. Venezuela is facing serious unrest <http://www.buenosairesherald.com/article/177305/amid-economic-crisis-venezuela%E2%80%99s-maduro-directs-anger-at-us>. And even better-prepared countries like Saudi Arabia could face heavy pressure if oil prices stay low. Read on for the longer guide to how we got here — and how countries around the world could be affected by the oil crash: Why oil prices plummeted in 2014 To understand this story, we first have to go back to the mid-2000s. Oil prices were rising sharply because global demand was surging — especially in China — and there simply wasn't enough oil production to keep up. That led to large price spikes, and oil hovered around $100 per barrel between 2011 and 2014. But as oil prices increased, many energy companies found it profitable to begin extracting oil from difficult-to-drill places. In the United States, companies began using techniques like fracking and horizontal drilling to extract oil from shale formations <http://www.vox.com/cards/fracking/how-has-fracking-boosted-u-s-oil-and-gas-production> in North Dakota and Texas. In Canada, companies were heating Alberta's gooey oil sands with steam to extract usable crude. This led to a boom in "tight oil" production. The US alone has added <http://www.vox.com/xpress/2014/11/17/7236379/the-united-states-hasnt-produced-this-much-oil-since-1986> 4 million new barrels of crude oil per day to the global market since 2008. (Global crude production is about 75 million barrels per day, so this is significant.) [image: (Energy Information Administration)] (Energy Information Administration) Up until very recently, however, that US oil boom had surprisingly little effect on global prices. That's because, at the exact same time, geopolitical conflicts were flaring up in key oil regions. There was a civil war in Libya <http://en.wikipedia.org/wiki/Libyan_Civil_War>. Iraq was a mess. The US and EU slapped oil sanctions on Iran and pinched its oil exports. Those conflicts took more than 3 million barrels per day <http://www.eia.gov/forecasts/steo/data.cfm?type=figures> off the market: [image: (US Energy Information Administration)] (US Energy Information Administration) But much of this was changing by mid-2014. Many of those disruptions started easing <http://www.eia.gov/todayinenergy/detail.cfm?id=18311>. In July, Libyan rebels opened two key export terminals, Es Sider and Ras Lanuf, that had been shut down for a year. Libyan exports rose unexpectedly. Even more significantly, oil demand in Asia and Europe began weakening <http://www.theguardian.com/business/2014/nov/13/oil-hits-four-year-low-in-response-to-china-slowdown> — particularly thanks to slowdowns in China and Germany. More broadly, oil demand has been stagnating in lots of places around the world. The United States, once the world's biggest oil consumer, saw big cutbacks in industrial oil use after the recession, while gasoline consumption has flatlined as fuel-efficient cars became more widespread. At the same time, countries like Indonesia and Iran have been cutting back on fuel subsidies <http://www.wsj.com/articles/tracing-oil-price-plunge-back-to-texas-1418404579> . That combination of weaker demand and rising supply caused oil prices to start dropping from their June peak of $115 per barrel down to around $80 per barrel by mid-November. And that was only the start… OPEC's surprising response: Let prices keep falling That brings us to OPEC <http://en.wikipedia.org/wiki/OPEC>, a collection of oil-producing nations that pumps out about 40 percent of the world's oil. In the past, this cartel has sometimes tried to influence the price of oil by coordinating either to cut back or boost production. At its big meeting in Vienna on November 27, there was a lot of heated debate <http://www.reuters.com/article/2014/11/28/us-opec-meeting-shale-idUSKCN0JC1GK20141128> among OPEC members about how best to respond to the drop in oil prices. Some countries, like Venezuela and Iran, wanted the cartel (mainly Saudi Arabia) to cut back on production in order to prop up the price. These countries need high prices in order to "break even" on their budgets and pay for all the government spending they've racked up: [image: OPEC breakeven prices] OPEC "break-even" prices in 2012. (Matthew Hulbert/European Energy Review <http://www.realclearenergy.org/charticles/2012/10/22/opec_median_budgetary_break-even_price_106748.html> ) On the other side of the debate was Saudi Arabia, the world's largest oil producer, which was opposed <http://www.reuters.com/article/2014/11/28/us-opec-meeting-shale-idUSKCN0JC1GK20141128> to cutting production and willing to let prices keep dropping. Why was that? For one, officials in Saudi Arabia remember what happened <http://www.reuters.com/article/2014/10/14/us-saudi-oil-policy-analysis-idUSKCN0I229320141014> in the 1980s, when prices fell and the country tried to cut back on production to prop them up. The result was that prices kept declining anyway and Saudi Arabia simply lost market share. What's more, the Saudis have signaled <http://www.reuters.com/article/2014/10/13/us-oil-saudi-policy-idUSKCN0I201Y20141013>that they can live with lower prices in the short term. (The government has built up massive foreign-exchange reserves to finance deficits.) In the end, OPEC couldn't quite agree on a response and ended up keeping production unchanged. "We will produce 30 million barrels a day for the next 6 months, and we will watch to see how the market behaves," said OPEC Secretary-General Abdalla El-Badri after the meeting. That caused the price of oil to start crashing even further <http://www.vox.com/2014/11/28/7302827/oil-prices-opec>. The price of Brent crude went from $80 per barrel to $70 per barrel in just a few days. And it kept tumbling to down below $60 per barrel by mid-December. For all intents and purposes, OPEC is now engaged <http://www.bloomberg.com/news/2014-11-27/oil-in-new-era-as-opec-refuses-to-yield-to-u-s-shale.html> in <http://www.bloomberg.com/news/2014-11-27/oil-in-new-era-as-opec-refuses-to-yield-to-u-s-shale.html>a "price war" with the US. What that means is that it's relatively cheap to pump oil out of places like Saudi Arabia and Kuwait. But it's more expensive to extract oil from shale formations in places like Texas and North Dakota. So as the price of oil keeps falling, some US producers may become unprofitable and go out of business. And the price of oil will stabilize. At least that's what OPEC members hope. A big question: Will low oil prices kill the US shale boom? The catch is that no one quite knows how low prices need to go to rein in the US oil boom.Analysts often focus on a metric called the "breakeven price" <http://cdn2.hubspot.net/hub/312313/file-374680987-pdf/Whitepapers/breakevencosts-evaluateenergy.pdf> for oil-drilling projects. Here, for instance, is ScotiaBank's estimates <http://www.gbm.scotiabank.com/English/bns_econ/bnscomod.pdf> of the breakeven price for various US shale and Canadian oil sands projects: [image: (ScotiaBank)] (ScotiaBank) If oil stays around $60 per barrel, some US companies will cancel or scale back shale drilling (a number of big companies are already pulling out <http://www.bloomberg.com/news/2014-12-15/oil-bust-veterans-brace-while-shale-boom-newbies-swagger.html> of Texas' Permian Basin for now). But other drillers may try to cut their costs, grit it out, and keep drilling. It really varies from company to company. That makes it very hard to predict how this all shakes out — or where global oil prices will bottom out. The US Energy Information Administration still expects <http://www.eia.gov/todayinenergy/detail.cfm?id=19171&src=email> that overall US oil production will grow another 700,000 barrels per day in 2015 — though that's slightly lower than the prediction when prices were high. We're about to see if that's right. How falling oil prices could affect Russia, Iran, and the US The plunge in oil prices is having significant economic consequences around the world. A few examples: *Russia:* Russia's situation is getting the most attention so far. The country's is hugely dependent on oil and gas production — with oil revenues making up 45 percent of the government budget — and the sharp fall on prices has been disastrous. Economists now estimate that Russia's GDP will shrink at least 4.5 percent <http://www.bloomberg.com/news/2014-12-15/russia-sees-economy-shrinking-at-least-4-5-in-2015-with-60-oil.html> in 2015 if oil stayed at $60 per barrel. The plunging price of oil has also caused the ruble's value to collapse — which is leading to panic inside Russia and a rise in inflation, as imports become drastically more expensive. Many Russians, worried that their savings may vanish, are rushing out <http://www.nytimes.com/2014/12/17/business/russia-ruble-interest-rates.html> to buy cars and washing machines — anything that has more lasting value than currency. So far, Russia's central bank has been struggling to deal with this crisis. On December 15, the country suddenly hiked interest rates from 10.5 percent to 17 percent <http://www.vox.com/2014/12/16/7401401/ruble-collapse-interest-rates> in an attempt to stop people from selling off rubles. But the ruble kept declining anyway, and some economists are now raising the possibility <http://krugman.blogs.nytimes.com/2014/12/16/the-ruble-and-the-textbooks/?_r=0> of a larger financial crisis. *Iran: *Iran's economy had recently started to rebound after years of recession. The International Monetary Fund had been projecting <http://www.bloomberg.com/news/2014-10-11/iran-central-bank-s-seif-says-sanction-won-t-stop-growth.html> that the country was on track to grow 2.3 percent next year. But that was all before oil prices started to plunge — a potentially precarious situation for the country. One big problem for Iran is that it also needs oil prices well north of $100 per barrel to balance its budget, especially since Western sanctions have made it much harder to export crude. If oil prices keep falling, the Iranian government may need to make up revenues elsewhere — say, by paring back domestic fuel subsidies (always an unpopular move, at least in the short term). *Venezuela:* There's growing concern <http://www.ft.com/cms/s/0/aaa13660-795e-11e4-a57d-00144feabdc0.html> that the oil crash could cause Venezuela, another major oil producer, to default. The nation's economy — heavily dependent on oil revenue — is set to shrink some 3 percent this year and inflation is rampant. *Saudi Arabia: *There's no question that Saudi Arabia, the world's largest crude producer, will suffer financially from cheap oil. If oil stays at around $60 per barrel next year, the government will run a deficit equal to 14 percent of GDP <http://www.ft.com/intl/cms/s/2/3f5e4914-8490-11e4-ba4f-00144feabdc0.html#axzz3M0pu7m13> . For now, however, the Saudis are trying to grit this out — and show no sign of trying to prop up prices as they have in the past. The kingdom has built up a stockpile of foreign currency worth some $740 billion, which it will use to finance its deficits. Still, if low oil prices persist, Saudi Arabia may have to cut back on some of the social programs it had instituted after the Arab Spring. *The United States: *In the US, meanwhile, a fall in crude prices would have more varied impacts. For many people, it will offer a nice economic boost: cheaper oil means lower gasoline prices — which have fallen to $2.51 per gallon, the lowest in five years: [image: (GasBuddy.com)] (GasBuddy.com) The EIA projects that US drivers will spend about $550 less on gasoline in 2015 than they did in 2014, assuming prices stay low. That will give consumers more money to spend on other things — a nice economic boost. But it's not all good news. Oil-producing states like Texas and North Dakota are likely to see a drop in revenues and economic activity. (For more, see: "Which states get hurt most by falling oil prices?" <http://www.vox.com/2014/10/9/6952533/oil-prices-falling-map-states-employment-north-dakota-texas>) The falling price of oil is also putting severe pressure on Alaska's state budget <http://www.latimes.com/nation/la-na-alaska-oil-20141216-story.html>. And, meanwhile, the economic turmoil around the world seems to be making US credit markets jittery <http://www.ft.com/cms/s/0/29020472-852f-11e4-bb63-00144feabdc0.html>. The price drop could also, at the margins, spur people to start using more oil. Case in point: In recent years, high gasoline prices have spurred many Americans to buy smaller, more efficient cars. But if gasoline prices fall, bigger cars and SUVs could make a comeback. (Overall US fuel economy will still keep rising over time — because the federal government has imposed new standards <http://www.vox.com/cards/obama-climate-plan/what-are-u-s-fuel-efficiency-standards-for-cars-and-trucks> on cars and light trucks through 2025. But this might now happen more slowly.) Will global oil prices stay low? That's hard to predict. The world is full of potential surprises. War could break out again in Libya or Iraq, which would hamper oil production. China's economy could come roaring back. Europe could suddenly rebound out of its malaise. Saudi Arabia could decide that enough is enough and cut back on production all of the sudden. Any of those things could increase prices. If history is any indication, oil prices will eventually rise again. And some experts think we should be preparing for that day. In the *Financial Times*, energy expert Michael Levi wrote a piece <http://www.ft.com/intl/cms/s/6cbfa7de-71a0-11e4-b178-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F6cbfa7de-71a0-11e4-b178-00144feabdc0.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=http%3A%2F%2Ft.co%2FCYn2y5sZgQ#axzz3KHwev6d2>on how the US (and other countries) could take advantage of low oil prices to make needed energy-policy reforms — such as ending wasteful fossil-fuel subsidies or putting in place new efficiency measures. That would help countries insulate against future price shocks. But that's hardly guaranteed to happen: Many policymakers might just decide low oil prices are here to stay and use it as an excuse to cut back on efficiency measures or energy alternatives. III/IV. http://www.bloomberg.com/news/2014-12-16/ruble-snaps-six-day-loss-on-surprise-rate-increase-to-17-percent.html Russian Rate Jump Fails to Stop Ruble Crash By Vladimir Kuznetsov and Ksenia Galouchko Dec 16, 2014 11:48 PM GMT+0530 The ruble plummeted into a freefall, losing as much as 19 percent as panic swept across Russian financial markets after a surprise interest-rate increase failed to stem the run on the currency. The ruble sank beyond 80 per dollar, a record low, before rebounding after Economy Minister Alexei Ulyukayev <http://topics.bloomberg.com/alexei-ulyukayev/>denied speculation that the government would turn to foreign-exchange restrictions to stop Russians from converting money into dollars. It was trading at 68 per dollar, down 5.4 percent on the day, at 8 p.m. in Moscow. Bonds and stocks also tumbled, with the RTS equity gauge dropping the most since 2008. “I am speechless,” Jean-David Haddad, an emerging-market strategist at OTCex Group in Paris, said in an e-mailed message. He said policy makers need to consider currency controls as “the last solution” to halt the ruble’s 52 percent plunge this year. “What a failure for the central bank.” *Related:* - *Quote:* The Dollar to the Ruble <http://www.bloomberg.com/quote/USDRUB:CUR> - Russia Defends Ruble With Biggest Rate Rise Since 1998 <http://www.bloomberg.com/news/2014-12-15/russia-increases-key-interest-rate-to-17-to-stem-ruble-decline.html> - Global Crude Plunges Through $60 as Producers Fail to Curb Glut <http://www.bloomberg.com/news/2014-12-16/oil-drops-as-u-s-producers-seen-standing-ground-amid-opec-fight.html> The scope and speed of the ruble’s retreat indicate policy makers are losing control <http://www.bloomberg.com/quote/RUFXINTR:IND> of the situation as the six-month, 49 percent tumble in oil robs President Vladimir Putin <http://topics.bloomberg.com/vladimir-putin/> of the hard currency he needs to sustain an economy that’s faltering under the weight of international sanctions. The selloff in Moscow is spreading across <http://www.bloomberg.com/quote/VIX:IND>the globe, prompting nervous investors to pull money from other developing nations amid concern that Russia <http://topics.bloomberg.com/russia/>’s financial struggles and the tumble in oil signal a global economic slowdown. <http://www.bloomberg.com/photo/ruble-/-iTCxA5jMkhIQ.html>Photographer: Dmitry Serebryakov/AFP via Getty Images The Sberbank's shares quotation in Moscow on Dec 16, 2014. The Russian ruble crashed to...Read More <http://www.bloomberg.com/news/2014-12-16/ruble-snaps-six-day-loss-on-surprise-rate-increase-to-17-percent.html#> Impromptu Meeting A Bloomberg gauge tracking the top emerging-market currencies fell to the lowest since 2003 while equity benchmarks in Dubai and Saudi Arabia <http://topics.bloomberg.com/saudi-arabia/> lost more than 7 percent each and Indonesian policy makers propped up the rupiah after it fell to a 16-year low. Bank of England Governor Mark Carney <http://topics.bloomberg.com/mark-carney/> said today that he sees the potential for contagion effect from emerging markets into developed ones that could have “some impact” on financial stability and growth. Russian government officials including central bank Governor Elvira Nabiullina and Finance Minister Anton Siluanov huddled tonight to discuss ways to combat the crisis, less than 24 hours after the 6.5 percentage-point rate increase, to 17 percent, could only stoke a brief rally in the ruble before it began falling. In addition to denying that officials were considering currency restrictions, Ulyukayev, the economy minister, told reporters after the meeting that “of course” rates should have been raised earlier than they were. No policy changes were announced. <http://www.bloomberg.com/photo/ruble-/-iY7N7tY0Y61c.html>Photographer: Alexander Zemlianichenko/AP Photo Signs advertising currencies light next to the exchange office in Moscow on Dec. 16, 2014. Dollar Demand Speculation has been growing that foreign-exchange controls were imminent, with firms from Schroder Investment Management Ltd. to Skandinaviska Enskilda Banken AB, or SEB, saying they were possible. Per Hammarlund, chief emerging-markets <http://topics.bloomberg.com/emerging-markets/> strategist at SEB, said the government could make it harder for depositors to swap cash into hard currency or require exporters to bring some earnings into the country. While there were no initial signs today of Russians lining up in downtown Moscow to pull their ruble deposits and buy dollars, Khanty-Mansiysk Otkritie Bank, the retail arm of the country’s second-largest private lender, said demand for foreign currencies was three to four times the daily average. Even after rebounding late in Moscow, the ruble was still down 14 percent this week and 27 percent this month. It earlier fell the most in a day since the country defaulted and devalued the currency in 1998. Ten-year ruble bond yields jumped 3.05 percentage points to 16.28 percent while the annual cost of insuring against a debt default climbed to 5.55 percent in the credit-default swaps market, the highest since 2009. ‘No Bids’ “Our traders are informing me that we see no bids to buy rubles,” SEB’s Hammarlund said. “I thought 17 percent would give them at least a month of breathing space. We next have to look at the experience in 1998-1999. We are also one big step closer to capital controls <http://topics.bloomberg.com/capital-controls/>.” Three-month implied volatility, a gauge of expected swings in the currency, surged 11 percentage points to 56 percent today, the highest level since 2005, according to data compiled by Bloomberg. The swings are proving too much for some brokers. FXCM Inc., the third-largest currency broker for retail clients, will stop offering the ruble versus the dollar and begin closing its customers’ trades. Alpari UK Ltd. stopped clients from taking new positions, while Saxo Bank A/S and Gain Capital Holdings Inc.’s Forex.com said they planned to demand higher deposits from clients to deal in the currency. Rosneft Financing The currency’s plunge was exacerbated by concern that policy makers were pumping more rubles into the economy to prop up state companies like oil giant OAO Rosneft, measures that effectively give investors additional money to purchase dollars. OAO Rosneft’s Chief Executive Officer Igor Sechin <http://topics.bloomberg.com/igor-sechin/> said suggestions the company’s bond sale contributed to the ruble’s decline were a “provocation” and reiterated that it has no plans to convert the 625 billion rubles it borrowed last week into dollars. Rosneft sold 57 percent of the $118 billion of foreign currency it earned in the first nine months of the year, he said. But central bankers are pushing rubles into the financial system to prevent credit from seizing up and deepening the slowdown in an economy that’s already sinking into recession nine months after Putin invaded Ukraine <http://topics.bloomberg.com/ukraine/>’s Crimea peninsula. The central bank alotted 3.1 trillion rubles in seven-day loans, known as repos, at an auction today, the second-biggest such operation since May. ‘Too Late’ The ruble has kept plunging even after the central bank raised rates 11.5 percentage points this year, including today’s surprise move, and spent more than $80 billion in the foreign-exchange market, draining reserves <http://www.bloomberg.com/quote/RUREFEG:IND> to a five-year low. Russia is sinking into stagflation as a recession looms at the same time that inflation soars to a three-year high. The economy may shrink as much as 4.7 percent next year if oil, Russia’s biggest export, averages $60 a barrel under a “stress scenario,” the central bank said yesterday. Net capital outflows may reach $134 billion this year, more than double last year’s total. “It’s very hard to stop the panic since everyone is betting against the ruble,” Vadim Bit-Avragim, amoney manager <http://topics.bloomberg.com/money-manager/> at Kapital Asset Management LLC in Moscow, said by phone. “The central bank was too late with its move. Without oil and the economy stabilizing, the ruble won’t rise.” To contact the reporters on this story: Vladimir Kuznetsov in Moscow at [email protected]; Ksenia Galouchko in Moscow at [email protected] To contact the editors responsible for this story: Wojciech Moskwa at [email protected] Merzaban, David Papadopoulos IV. http://www.thehindubusinessline.com/markets/sensex-live-update/article6696651.ece Sensex slumps 538 points on global cues, weakening rupee OUR BUREAU - - MUMBAI, DEC 16: Mumbai, December 16 Fears of a slowdown in the global economy, decreasing crude oil prices and a widening trade deficit led to an across-the-board sell-off in the market, pulling the benchmark share indices down to a seven-week low. The Sensex slumped 538 points to close at 26,781 (minus 1.97 per cent) on Tuesday. The Nifty closed 152 points lower at 8,068 (1.85 per cent down). In all ₹6,29,793 crore in market capitalisation has been eroded in the last eight trading sessions. Markets fluctuated heavily and the volatility index, India Vix, closed 16.32 per cent up, at 16.3075. “The markets fell sharply on the back of weakness in global markets and commodities, especially crude oil. The depreciation of the rupee had a negative sentimental impact, we believe,” said Dipen Shah, Head of Private Client Group Research at Kotak Securities. Going ahead, the decision of the US Federal Reserve will be the immediate trigger. Apart from this, crude prices will continue to have a bearing on sentiments, he added. The rupee fell to about 63.54 [from 62.72 (?) on the previous day] to the dollar in the spot market, trading close to yearly lows. According to Sugandha Sachdeva, AVP , Metals, Energy & Currency Research, Religare Securities: “The correction witnessed in domestic equities and anticipation of an interest-rate hike in early 2015 in the wake of a strengthening US economy, ahead of the upcoming US FOMC (Federal Open Market Committee) meeting, are further fuelling the fall in the domestic unit.” Foreign portfolio investors sold net equities worth ₹1,247 crore while domestic institutional investors bought net equities amounting to ₹535 crore. Retail investors on the BSE also offloaded net equities worth ₹111 crore on Tuesday. Mid-cap and small indices also shed in excess of 2.5 per cent as did all sectoral indices, barring Information Technology. (This article was published on December 16, 2014) - <https://www.facebook.com/sharer/sharer.php?u=http%3A%2F%2Fwww.bloomberg.com%2Fnews%2F2014-12-16%2Fruble-snaps-six-day-loss-on-surprise-rate-increase-to-17-percent.html> - <https://www.facebook.com/sharer/sharer.php?u=http%3A%2F%2Fwww.bloomberg.com%2Fnews%2F2014-12-16%2Fruble-snaps-six-day-loss-on-surprise-rate-increase-to-17-percent.html> -- You received this message because you are subscribed to the Google Groups "Green Youth Movement" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. To post to this group, send an email to [email protected]. Visit this group at http://groups.google.com/group/greenyouth. For more options, visit https://groups.google.com/d/optout.
