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Dec 18 2014, 12.34pm GMT


President Putin answered journalists’ questions today in an effort to explain Russia’s crisis.

Over recent months the ruble has reached levels of recession with interest rates rising by a total of 17% against a background of political tensions. Russia is facing an oil price slump, a crash in its currency and sanctions over the Ukraine conflict.

Today Putin went to the media to answer questions but it did little to substantiate any confidence in Russia’s immediate economic future.

This week’s ruble movement has been extreme against the downward slide seen since June of last year. On Tuesday the USDRUB spiked up to 78, it stopped and closed at 72. On Wednesday it fell again from 72 to 59, losing 13$ on the day and $19 from the top of the movement. Today the ruble opened with some strength achieving gains from 57 to 63, little changed compared to yesterday’s closing price.

Putin referenced ‘chaining the bear’ in his speech today, pertain to his accusations that it is the West that has caused the Russian recession. The president noted that the crisis could last another two years in what he called “the worst situation”. The ‘bear’ metaphor continued through his answers: “Perhaps the Russian bear should eat berries quietly and not chase piglets in the taiga,” referencing the Ukraine action, and noting, “Do we want our bear to just become a stuffed animal?”

Putin pointed out that the Russian Central Bank was dealing with the crisis, even if a little late, stating, “The current situation has been provoked by external factors, but it's worth noting that we haven't done what we planned to do to diversify our economy.”

The plan in question includes supporting the major oil producers on which the country relies so heavily. Majority state-owned Rosneft needs a bailout to refinance its expensive foreign debt. Rather than interrupt revenue-dependent oil production developments, the central bank accepted Rosneft bonds held by commercial banks as collateral for loans, allowing Rosneft to issue 625 billion rubles.

Most major Russian companies are in the same position as they need the ruble to be strong to pay debts that are becoming more expensive every day. The foreign loans bill for this month is $30 billion; next year this bill will amount to $130 billion. The Russian Finance Ministry said it “considers the ruble to be extremely undervalued and has started selling foreign currency from its balances on the market.” Igor Akinshin, a forex trader at Alfa Bank in Moscow, quoted by Reuters said, “Sooner or later they'll flood the market with foreign currency, that's what the market expects. We're awaiting foreign currency from exporters, the finance ministry and central bank.” Prime Minister Dmitry Medvedev response was to call on exporters to behave responsibly with forex revenues.

In terms of public financing, the government also have plans to cut spending on 2015 budgets, with Wednesday’s statement from Tatyana Golikova, head of the government’s Audit Chamber, reported by Interfax, as saying, “We’re in a very difficult position today and despite the fact that the 2015-2017 budget has already been passed, we all understand there will be problems with fulfilling it.”

In the meantime, the hike in interest rates has been followed by intervention from the government who are pressuring exporters not to hoard foreign-currency earnings. The RCB announced new measures to support financial stability. On this announcement, Sperbank shares rose sharply from 47 to 65, almost 40% since yesterday's lows.


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