Capital controls feared as Russian rouble collapses
The Russian rouble has suffered its steepest one-day drop since the default crisis in 1998 as capital flight accelerates, raising the risk of emergency exchange controls and tightening the noose on Russian companies and bodies with more than $680bn (£432bn) of external debt.
The currency has been in freefall since Saudi Arabia and the Gulf states vetoed calls by weaker Opec members for a cut in crude oil output, a move viewed by the Kremlin as a strategic attack on Russia. A fresh plunge in Brent prices to a five-year low of $67.50 a barrel on Monday caused the dam to break, triggering a 9pc slide in the rouble in a matter of hours. Analysts said it took huge intervention by the Russian central bank to stop the rout and stablize the rouble at 52.07 to the dollar. “They must have spent billions,” said Tim Ash, at Standard Bank.
It is extremely rare for a major country to collapse in this fashion, and the trauma is likely to have political consequences. "This has become disorderly. There are no real buyers of the rouble. We know that voices close to president Vladimir Putin want capital controls, and we cannot rule this out," said Lars Christensen, at Danske Bank. "Funding problems are increasing dramatically. We think Russia is now flirting with systemic problems,” he added.
Some Russian banks have already started limiting withdrawals of dollars and euros to $10,000, an implicit lockdown for big depositors..........
The rouble's slide has led to fury in the Duma, where populist politician Evgeny Fedorov has called for a criminal investigation of the central bank. Critics say the institution had been taken over by "feminist liberals" and is a tool of the International Monetary Fund. The office of the Russia general prosecutor said on Monday it was opening a probe.
The central bank has refused to intervene to defend the rouble over recent weeks, letting the exchange rate take the strain rather than burning through reserves to delay the inevitable, as Nigeria and Kazakhstan are doing. It squandered $200bn of reserves in a six-week period in late 2008 and triggered an acute banking crisis, learning the hard way that currency intervention entails monetary tightening. By letting the rouble fall, it shields the Russian budget from the slump in global oil prices, though not entirely. Deutsche Bank said the fiscal balance turns negative at crude prices below $70.
Yet the devaluation is causing prices to spiral upwards in the shops and may at some point cause a self-feeding crisis if it evokes bitter memories of past currencies crashes. The finance ministry said it expects inflation to reach 10pc in the first quarter of 2015. There is already a dash to buy washing machines, cars and computers before they shoot up in price, a shift in behaviour that signals stress.
The rouble slide is ratcheting up the pressure on Russian companies facing $35bn of redemptions of foreign debt in December alone, mostly in dollars. Yields on Lukoil’s 10-year bonds have jumped by 250 basis points since June to 7.5pc.