Russian economy in crisis: Apple now stops all sales in the country because it cannot fix prices when the ruble is so volatile
Tech giant Apple has halted sales of iPhones, iPads and other products in Russia, saying the country’s currency is too volatile to set prices.
The value of the ruble collapsed this week, losing 20 percent of its value against the dollar at some point yesterday, after a dramatic decision to raise interest rates triggered investor panic.
The Central Bank of Russia raised interest rates from 10.5% to 17% in a desperate effort to bolster the currency yesterday, but the move instead led to a financial collapse.
Scroll down for video
Money worries: Vladimir Putin faces toughest test of leadership yet as Russian currency “plummets”, prompting Apple to suspend sales of its products
Customers in Russia cannot buy iPhones, iPads, or other Apple items online today because the company said it cannot price when the value of the ruble is so volatile. .
The crisis could weaken President Vladimir Putin’s iron grip on power as analysts warned the currency was in “free fall”.
Apple has already raised prices by 20 percent this year after the ruble has fallen since January left its products cheaper in Russia than elsewhere in Europe.
Central bank officials today revealed that they have spent $ 2 billion intervening in the currency market since Monday and have spent $ 80 billion since the start of the year.
“Russia is in the midst of a currency crisis,” said Alexander Moseley, fund manager at Schroders, the asset management company.
Harry Adams, managing director of foreign exchange specialist Argentex, said the ruble had turned into “rubble”.
The ruble has fallen almost 60% against the dollar this year amid falling oil prices and concerns about the outlook for the Russian economy.
Oil and gas account for 70 percent of Russia’s exports and half of government revenue, making the country vulnerable to falling prices.
Crude fell below $ 59 a barrel yesterday for the first time since May 2009, after trading at $ 115 in June.
Fighting: The surprise announcement comes after the value of the ruble has fallen by around 50% since January – battered by Western sanctions imposed on the conflict in Ukraine (pictured)
The drop in the price of oil and the sanctions imposed on Russia by the West for its land grab in Ukraine have left its fragile economy on the brink of recession.
At one point yesterday, a dollar was worth nearly 80 rubles – up from around 30 earlier in the year – bringing back memories of the Russian financial crisis of 1998, when the currency collapsed and the country was forced to default. on his debts.
The current crisis has put pressure on Mr Putin. “The pieces are falling into place to begin to affect the political sustainability of this regime,” said Nicholas Spiro, of London-based consultancy Spiro Sovereign Strategy.
Russia’s central bank predicts the economy will contract 4.5 percent in 2015 if oil prices average $ 60 a barrel throughout the year. The fall of the ruble has pushed inflation above 9% by making imports more expensive, which will hurt families and businesses.
Sergei Shvetsov, vice-governor of the central bank, said yesterday in Moscow: “I could not imagine a year ago that such a thing would happen, even in my wildest dreams. The situation is critical.
Lavrov insisted, “I can assure you that Russia will not only survive, but we will come out stronger. We’ve been in much worse situations in our history and each time we’ve come out of those fixes much stronger. It will happen this time.
Turmoil: Putin was facing a serious crisis last night after the Russian ruble crashed to the ground, it hit 80 per dollar, 100 per euro and 113 per pound at one point and lost 20 % in a few hours
Overnight, Russia dramatically raised its interest rate from 10.5 percent to 17 percent in a desperate effort to prevent the ruble from collapsing and boost its struggling economy.
The surprise announcement was made at 1 a.m. Moscow time and comes after the value of the ruble has fallen by around 50% since January – due to falling global oil prices and imposed Western sanctions. following the conflict in Ukraine.
This is Russia’s biggest hike since 1998, when interest rates exceeded 100% and the government defaulted on its debt.
The Russian economy is threatened with paralysis as the fall in the value of its currency pushes inflation to dangerous levels. The overnight action, however, allayed fears somewhat, prompting the ruble to gain immediately and leaving it up 1.6% in the Asian stock market.
The aggressive move by the Bank of Russia illustrated the scale of the economic dangers Russia faces and reflected fears that the falling ruble could trigger consumer panic and prompt a run on the banks.
Russian interest rate: last-minute desperate interest rate hike to 17% failed to stop collapse
By raising interest rates, the central bank hopes investors will find it more financially attractive to keep their money in Russia rather than moving it to Western Europe, Asia or the United States.
“They did it as a decoy to encourage people to keep their rubles at home rather than continue to flee the currency and the country,” said Barry Eichengreen, an economist at the University of California.
“It’s a way to save time. It does not solve any of the underlying problems of the Russian economy, ”he added, referring to falling energy prices, Western sanctions and widespread corruption.
Such challenges are particularly difficult because the Russian economy relies heavily on oil revenues and lacks diversification to withstand severe economic downturns.
This tends to leave Russia at the mercy of global financial markets, where the price of oil is in dollars.
The average price of a barrel of oil has fallen below $ 56 from a summer high of $ 107.
History: This is Russia’s biggest hike since 1998, when interest rates surpassed 100%, the government defaulted on its debt and people lined the streets of Moscow to withdraw their savings (photo)
The Russian government recently downgraded its growth forecast for next year, predicting that the economy will sink into recession. Yet the Bank of Russia’s latest move comes with its own dangers.
Raising rates to try to contain inflation risks inflicting further economic damage, Eichengreen noted. While high interest rates can attract money from investors, they can also stifle growth by making it harder for consumers and businesses to borrow and spend.
Vital: Russian economy depends on the price of oil extracted from its Siberian platforms (photo)
The announcement in Moscow came after the US and European markets closed.
Stocks have suffered in recent days amid steadily declining global oil prices. The sale could continue if investors view the Bank of Russia’s move as ineffective.
The central bank gradually raised the rate from 5.5% at the start of this year to 17% now.
Last Thursday, he tried unsuccessfully to stem the fall of the ruble by raising its key rate by 1 percentage point to 10.5%. He cited a surge in consumer prices and a “significant inflation risk”.
The Bank of Russia then said it expected prices to rise 10 percent for 2014 and rise again in the first quarter of 2015. But the ruble plunged again yesterday, from 55 rubles to the dollar on Thursday. at about 65 rubles to the dollar as the markets closed last night.
A declining currency increases the cost of imports, fueling inflationary pressures. At the same time, falling oil prices limit the government’s ability to fight a downturn and force it to borrow more.
Sanctions imposed by the West have amplified Russia’s economic turmoil.
In September, the United States and the European Union announced a new round of sanctions against Moscow’s involvement in Ukraine, including blocking Western financial markets to major Russian companies and restricting imports of certain technologies.
The additional sanctions should cause enough pain to put Russia into recession for a year or two, predicted economist Alexei Kudrin, who served as finance minister under President Vladimir Putin for 11 years until 2011.
The potential for a prolonged downturn has prompted investors to pull their money out of the country, causing the ruble to fall further in value.