Russia appeared to be heading for a serious currency crisis on Tuesday, as the ruble continued its slide over fears about the economy's stability amidst a historic drop in oil prices and Western-imposed sanctions. The New York Times reported that Russians are buying big ticket items like washing machines to convert their rubles into actual products before the value of their savings goes up in smoke.
On Monday, the central bank took the extreme step of raising its benchmark interest rate to 17 percent, from 10.5 percent, to stem the bleeding. But it hasn't worked so far, largely because investors are concerned about a shady deal that saw the central bank essentially print money to buoy the state energy giant Rosneft, which has been badly hit by a worldwide glut of oil:
Traders suggested that they had been spooked by concerns that the cronyism and opaque insider dealings that have long plagued business here had spread to monetary policy. [The New York Times]
Of course, the head of Rosneft, Igor I. Sechin, is closely tied to President Vladimir Putin. As Leonid Bershidsky at Bloomberg View writes, "All who try to understand Russia's stormy markets today should keep in mind that they are dealing with a dictatorship, whose monetary authorities can only conduct reasonable policy until Putin says otherwise."