When your currency lost one third of its value in 24 hours ii creates chaos. The effect is jacking up the prices of all imports causing frenzy buying a high priced items.
Russia gets 80 percent of its revenues from oil.
Oil is down 40%.
Trading in the Russian ruble was volatile early Wednesday morning, rallying briefly on news that the Finance Ministry was ready to sell some of its foreign currency reserves, and then weakening again.
The ministry said Wednesday morning that it was prepared to sell as much as $7 billion of those reserves to support the ruble, which a senior official said was “extremely undervalued.”
We will sell “as much as we need to,” Alexei V. Moiseev, the deputy finance minister, told journalists, the Interfax news agency reported. Separately, Interfax said that the Finance Ministry had already begun selling currency reserves.
The ruble was at 68.25 to the dollar in midmorning trading. It closed at 67.50 on Tuesday, when it swung wildly to about 80 rubles to the dollar after opening the day at 64.
The fear was sparked by the plummeting ruble, which has dropped 17 percent against the dollar in two days despite a dead-of-night decision Tuesday by the Russian central bank to impose a steep interest-rate hike to stem the currency losses.
Russia’s central bank hiked interest rates from 10.5 percent to 17 percent to try to tempt foreign investors to buy ruble-denominated assets even at the price of a potentially devastating recession
Putin remains tremendously popular in Russia, but his rule has long been predicated on a basic bargain with voters: They gain economic prosperity and stability in exchange for acquiescence to a political life devoid of real opposition. His half of the deal now appears in question.
Currency traders seem to be betting that at this pace Russia will run out of reserves before oil prices get high again.
Net capital outflow may reach $134 billion this year, more than double last year’s total.
The ruble, which has depreciated 50 percent this year against the dollar, is the worst performer among more than 170 currencies tracked by Bloomberg.
1998 was huge devaluation and default on Russian debt. Russia’s actions indirectly led to the collapse of LTCM—a major hedge fund which required an unprecedented $3.6 billion bailout orchestrated by the US Federal Reserve.
But while markets gyrated in 1998, the US economy benefitted from three positives: consumers’ purchasing power benefitted from the drop in oil; the strong dollar boosted profit margins for importers and helped keep the Federal Reserve from tightening policy; and the drop in interest rates lowered mortgage rates and boosted home affordability.