The ruble tumbles again as paid provocateurs take over buildings in cities in the eastern Ukraine and demand referendums to make the largely Russian speaking eastern parts of the Ukraine Russian. As reported in the online Binary Tribune, the USD/RUB surges due to unrest in the eastern Ukraine.
Russia’s annexation of Crimea at the beginning of last month triggered a massive sell-off of the Russian currency and equities of the country.
Ruble’s demand continues to be pressured by simmering tensions between Russia and the West, in what turns out to be the worst conflict between the two parties since the end of the Cold War. Pro-Russian protesters gained control over state buildings in three eastern Ukrainian cities on Sunday. Kiev’s pro-European government accused Russian President Vladimir Putin of fueling separatist disorder.
If Russia continues to fuel unrest in its neighbor things will probably get worse for the Ruble. Both the USA and EU have imposed a number of sanctions, freezing assets of close associates of Russian president Putin. Britain is asking the EU and USA to ramp up sanctions further which is likely to happen if Russian does not remove the troops massed on the Eastern border of Ukraine.
Inflation as Well
When the value of a currency falls it does not just fall in relation to other currencies. It falls in relation to commodities as well. This applies to imports but also to things produced locally. Thus it is no surprise that as the ruble tumbles again that inflation has hit a nine month high in Russia.
Inflation in Russia in the month of March was the highest in nine months, fuelled by the decline of the ruble as the country faced off against the West over the Ukraine crisis.
Consumer prices grew 6.9 percent from a year ago, up from a gain of 6.2 percent in February, according to the Federal Statistics Service in Moscow. This exceeded the average estimate of a growth of 6.8 percent in a Bloomberg survey of 18 economists. Prices plunged 1 percent in March, against forecasts of 0.9 percent as the economy slid further.
The ruble plunged as Russia entered into its biggest standoff against the West since the Cold War, making it harder for the central bank to keep inflation under 5 percent.
One certainly hopes that the worst relations between Russia and the West since the Cold War will improve. However, to the extent that Mr. Putin is playing to his conservative constituency, he may just continue to poke at an essentially defenseless Ukraine while the West can only talk and ramp up sanctions. However, if the sanctions make inflation worse it will not play well in the hinterlands of Mother Russia and could well be the factor that brings Mr. Putin to his senses before the ruble tumbles again, and again and again.
In a recent speech German Chancellor Merkel says that no one should doubt EU resolve on Russian sanctions. As reported in Reuters, the German leader noted that if Russian continues on its present course further sanctions will come.
“If the territorial integrity of Ukraine continues to be violated, then we will have to introduce economic sanctions,” Merkel told a congress of her Christian Democratic Union (CDU), kicking off its campaign for European Parliament elections next month.
Nobody should doubt this. We are all different in Europe, but we have the good fortune of being united, and together we will take this decision,” said the leader of Europe’s biggest economy which has close ties to Russia and has played an influential role in shaping the West’s response to the crisis.
Forex traders will want to follow events closely if they wish to trade the USD/RUB pair as the ruble tumbles again and again.