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Russia reels

Intervention fails to stem disintegration
December 18, 2014

A dramatic intervention by the Russian central bank this week failed to shore up confidence in the rouble, and by proxy the wider Russian economy. Indeed, the effect was arguably the opposite to that which Russian authorities were hoping for as the rouble whipsawed around against the dollar, tumbling to new lows beyond those seen during the global financial crisis in 2008.

This led to further capital flight from Russia and a second intervention in global money markets when the Russian finance ministry said it would begin selling off up to $7bn of its foreign reserves, which total more than $400bn. Whether this money is being used to buy up roubles is not yet clear.

The Russian government has found itself squeezed by economic sanctions over its involvement in the Ukrainian conflict and, more significantly, the slump in the oil price which saw Brent Crude dip below $60 a barrel this week. Russia's oil and gas accounts for more than two-thirds of its exports and half of government revenues.

Developments have rattled Russian equity markets and sent ripples through the wider developing world, sending government borrowing costs up in other emerging markets. Meanwhile, a prolonged crisis in the Russian economy could have serious implications for Russian companies who need to roll over debts during the coming months.