Russian economy takes another hitAnalysts have a hard time trying to predict what is going to happen with the Russian economy in 2016. Just a couple of weeks ago we were expecting things to go down, but by today they are not just going down but plummeting.

The Unexpected Developments

Russian people watch the developing economic situation with a growing shock. All pre-Christmas hopes on the new year bringing some relief might have been overly optimistic.

Oil prices went down to USD $26 per barrel on Wednesday 20 January, the lowest since 2003. Economists predicted drop to $20 or even $10 per barrel, but no one wanted to believe it.

The currency exchange market quickly reacted by US Dollar skyrocketing to the highest level ever since denomination in late 1990s, exceeding 82 rubles per 1 USD. It was just 3 weeks ago that the level of over 70 rubles per dollar seemed exorbitant.

Today, 21 January, ruble hit a new high, surpassing 85 rubles per 1 US Dollar during the trading session.

Rubles per 1 USD

Ruble to US Dollar chart 2015-2016. (Click to enlarge)


Press secretary of President Putin said that he would not call the drop in ruble value a “collapse”. “The rate changes, it’s volatile, but it’s far from a collapse”, Dmitry Peskov said.

Russian Central Bank raised the official rate to 83.59 rubles per 1 US Dollar (4.13 rubles higher than yesterday).

Russians stopped making jokes about the dollar potentially hitting 100 ruble mark, because it looks quite probable, given the current dynamics.

  • In his speech on a small business forum, Russian President Vladimir Putin said that the current currency exchange opens “new opportunities”, reported.
  • The head of Russian Central Bank Elvira Nabiullina said that the national currency was close to its “fundamentally established course”.
  • Bank of America made a prediction that to have a budget with no deficit with the oil price under USD $25 Russia would need to drop the exchange rate to the level of 210 rubles per 1 USD.
  • Budget with no more than 3% deficit, which President Putin promised, would see the exchange rate at 140 rubles per 1 USD.

Oil prices dropped massive 25% for the 3 weeks of 2016, CNBC reported. It is a steeper decline than during the last financial crisis.

Lifting of sanctions against oil-producing Iran increased the pressure on the market, which already suffers from oversupply.

Russian oil companies have billions of dollars in reserves but they prefer not to sell dollars because of the constant rise in the exchange rate. Just one company is reported to have over 3 billion dollars in reserves.

Director of Bank Institute Vasily Solodkov said that the problem was in the fact that “the current Russian economics is linked to oil prices”. He stated that investments were dropping by day.

Sberbank’s expert Iskander Lutsko believes that exporters of oil and gas were keeping more than 60% of income in reserves in 2015, as compared to 26% in 2014. The reason why they are not converting dollars to rubles is because of devalvation of the Russian national currency. points out that the shrinking ruble is not a concern for the Russian government because 2016 budget was designed on the basis of oil prices of US $50/barrel, and 1 US dollar at 65 rubles. Now the oil is below $30/barrel. To balance the budget, ruble needs to lose roughly 1/2 of its value.

Although MK experts make a disclaimer:

“Sure, it’s not a fact that the current devaluation of ruble is orchestrated by the powers to be. We cannot prove it. We are simply noticing their surprising calmness, which is sharply different to how they used to behave in similar situations before. And trying to find an explanation.”

Experts predict that the base rate by Russian Central Bank may reach 17% as in December 2014 (currently 11%).

Oil Price January 2016

Crude oil price chart October 2015 – January 2016. (Click to enlarge)

How Regular Russians Feel About The Situation

The user poll by demonstrated the following results:

What feelings you experience with dollar at 80 rubles?

  • Sadness: 36%
  • Anger: 28%
  • Desire to earn salary in dollars: 26%
  • Gloat: 10%
Dollar to ruble exchange rate

Dollar to ruble exchange rate, 21 December 2016.


Russia: Prospects of Economic Growth Read also:


Share this articleFacebooktwitterpinterestmail
Leave Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Notify of