Running From the Ruble

The cause of Russia’s “Black Monday” was readily apparent: the government bailout of state-owned Rosneft, the country’s largest oil company. Usually, bailouts calm markets; but this one recalled early post-Soviet experiments, when the Central Bank of Russia issued direct loans to enterprises – invariably fueling higher inflation.

PARIS – In recent weeks, the fall in the Russian ruble and Russian stock markets closely tracked the declines in global oil prices. But everything changed on December 15. The oil price remained stable, but the ruble and the stock-price indices lost 30% in the subsequent 24 hours. An unprecedented effort by the Central Bank of Russia (CBR) in the wee hours of December 16 to stabilize the ruble, by hiking the interest rate from 10.5% to 17%, proved useless.

The cause of Russia’s “Black Monday” was readily apparent: the government bailout of state-owned Rosneft, the country’s largest oil company. Usually, bailouts calm markets; but this one recalled early post-Soviet experiments, when the CBR issued direct loans to enterprises – invariably fueling higher inflation. The CBR’s governor at the time, Viktor Gerashchenko, was once dubbed the world’s worst central banker.

In 2014, the CBR is more constrained than it was in Gerashchenko’s era: it cannot lend directly to firms. Yet it has also become more sophisticated at achieving the same ends that Gerashchenko sought.

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