Rising prices unnerve Russians
Moscow — Russian consumers flocked to the stores Wednesday, frantically buying a range of big-ticket items to pre-empt the price rises kicked off by the staggering fall in the value of the ruble in recent days.
As the Russian authorities announced a series of measures to ease the pressure on the ruble, which slid 15 percent in the previous two days and raised fears of a bank run, many Russians were buying cars and home appliances — in some cases in record numbers — before prices for these imported goods shoot higher.
The Swedish furniture giant IKEA already warned Russian consumers that its prices will rise Thursday, which resulted in weekend-like crowds at a Moscow store on a Wednesday afternoon.
Shops selling a broad range of items were reporting record sales — some have even suspended operations, unsure of how far the ruble will sink. Apple, for one, has halted all online sales in Russia.
“This is a very dangerous situation. We are just a few days away from a full-blown run on the banks,” Russia’s leading business daily Vedomosti said in an editorial Wednesday. “If one does not calm down the currency market right now, the banking system will need robust emergency care.”
Russian President Vladimir Putin has few good options other than pointing the finger at the U.S. and its allies as he seeks to stem the panic sparked by the collapse of the ruble, which suffered catastrophic losses as traders worried about the combined impact of low oil prices and Western sanctions over Russia’s involvement in Ukraine’s crisis.
Putin will speak at his annual press conference Thursday. He is keen to avoid any dramatic steps such as firing Prime Minister Dmitry Medvedev, according to former and current Kremlin advisers. Also Thursday, The European Union is expected to finalize a latest round of sanctions that targets investments in Crimea as part of the decision not to recognize Russia's annexation of the Ukrainian peninsula.
Alyona Korsuntseva, a shopper at IKEA in her 30s, said the current jitters surrounding the Russian economy reminded her of the 1998 Russian crisis when the ruble tumbled following the government’s default on sovereign bonds.
“What’s pressuring us is the fact that many people (back then) rushed to withdraw money from bank cards, accounts,” she says. “We want to safeguard ourselves so that things wouldn’t be as bad they were back then.”
Consumers are buying durable goods as they are seen as better investments than most Russian stocks. And, an overwhelming majority of Russians cannot afford to buy land or real estate.
Some signs emerged Wednesday that the ruble’s freefall may have come to an end and the currency could recover, at least in the short-term. After posting fresh losses early Wednesday, the ruble rallied more than 10 percent to around 60 per dollar at 9 p.m. Moscow time (1 p.m. EST).
Analysts credited a series of reassuring statements from the Central Bank and the government for the improving ruble backdrop. The ruble has lost more than half of its value against the dollar since the beginning of the year.
First, Deputy Finance Minister Alexei Moiseyev said the government will sell foreign currency from its own reserves “as much as necessary and as long as necessary.”
Then the Central Bank announced an expanded series of measures to help calm the situation such as giving banks more freedom to increase interest rates on retail deposits and offering them more flexibility to deal with the ruble’s depreciation on their balance sheets.
Neil Shearing, chief emerging markets economist at London-based Capital Economics, said the “authorities have at last started to develop a strategy for containing the effects of the ruble’s collapse on the banking system and wider economy.”
Political analysts in Moscow say Putin has little to offer beyond words to Russians reliving memories of the financial crisis that wiped out their savings in 1998, the year before he came to power.
“The president doesn’t admit his mistakes because he would see this as a public humiliation,” said Stanislav Belkovsky, a Kremlin adviser in Putin’s first term who now consults for Moscow’s Institute for National Strategy, a research company. “He will blame the crisis on the West.”
Putin has enjoyed near-record approval ratings since Russia annexed Ukraine’s Crimea peninsula in March. He brushed off U.S. and EU sanctions in response to the action, saying in his annual address to parliament and top officials on Dec. 4 that Russia’s former Cold War enemies would have “come up with some other excuse” to contain the country if the crisis had not occurred.
Whatever happens with the ruble, the Russian economy is set to shrink next year by 0.8 percent, even if oil prices stay above $80 per barrel. If oil prices stay at the current level of around $60, the Central Bank said the Russian economy could contract by nearly 5 percent.
Bloomberg News contributed
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