Business

Russians urged 'don't panic' as rouble hits new low

  • 16 September 2014
  • From the section Business
roubles Image copyright Science Photo Library

Russian authorities urged people not to panic on Tuesday as the rouble fell to a new all-time low against the US dollar amid concerns about the effect of sanctions on the country's economy.

The rouble fell about 1% to 38.71 per dollar, the weakest it has been since the currency was restructured in 1998.

Last week, the US and Europe introduced further sanctions against Russia for its actions in Ukraine.

"Don't panic," said deputy finance minister Alexei Moiseyev.

Ordinary Russians are concerned the fall in the rouble could drive up the already high rate of inflation.

In early September annual inflation was 7.7% as the weaker rouble increased the cost of foreign imports and Moscow's food import ban reduced competition.

The central bank aims to reduce inflation to 4.5% next year and Mr Moiseyev said authorities would act to curb any further increases.

Central bank steps in

His reassurance came as Russia's central bank said on Tuesday that it would take action to boost liquidity in the banking sector.

The move aims to help the banks overcome their limited access to foreign capital due to the impact of sanctions.

"These operations are aimed at strengthening the capacity of credit institutions to manage their own short term currency liquidity," the central bank said in a statement.

Former finance minister Alexei Kudrin had earlier warned that sanctions would have a material impact on the Russian economy.

"The sanctions that have been imposed are going to have an effect for the next one or two years because they have limited opportunities for investment in this uncertain environment," he said, according to Interfax news agency.

New sanctions imposed on Friday last week targeted Russia's state finances, energy and arms sectors.

Russian state banks are now excluded from raising long-term capital in the European Union, export bans have been extended, while future EU-Russia arms deals are also banned.

The EU has also followed the US in targeting more individuals in President Putin's inner circle, as well as some major companies.

The West accuses Russia of supporting Ukrainian pro-Russian rebels in their conflict with government forces. Russia denies any direct involvement.

Other factors have also affected the value of the rouble, including the fall in the price of oil and reduced support for the currency from the central bank.

"Oil and related products still account for nearly half of exports, meaning that lower prices translate into lower export revenues, which in turn puts pressure on the currency," said Neil Shearing at Capital Economics.

Last month, Russia's central bank said it would reduce its support for the rouble and allow the currency to trade within a wider band.

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