Russia Could Be On Brink Of Full-Blown Currency Crisis

Transcript

AUDIE CORNISH, HOST:

Russia could be on the brink of a full-blown currency crisis. The ruble fell to another record low against the dollar today. And that's even after strong measures by the country's Central Bank. And that means the currency has now lost more than half its value since the beginning of this year.

NPR's Corey Flintoff joins us from Moscow to talk about what this means for President Vladimir Putin and his country. And Corey, we've been hearing about this every day for the past week, but how serious is this for Russia's economy?

COREY FLINTOFF, BYLINE: Well, potentially it's very serious. The Russian Central Bank is now predicting that Russia will go into recession officially next year. And that's with the economy down by about 4.5 percent. A lot of big Russian companies are going to have trouble paying down their foreign debts. Russia, of course, imports a lot of its food and its consumer goods. And their weak ruble means that those items are going to get to be a lot more expensive. And of course, the value of people's savings has been eroding so they can afford to buy less. It's kind of a perfect storm for the economy.

CORNISH: What are people pointing to for the cause? I mean, is it low oil prices or those Western sanctions imposed against Russia for its actions in Ukraine?

FLINTOFF: Oil prices are really the main problem. Most of Russia's export money is earned from selling oil and gas. And the prices for the premium types of crude oil fell below $60 a barrel today. And that's down from around $115 earlier this year. But, you know, Western sanctions are important, and that's because it's become very hard for Russian companies, especially these big state-owned oil and gas companies, to borrow money to fund their operations. And there's talk that there could be more U.S. sanctions in the near future. But analysts that I've talked to say the problem has gotten a lot worse than low prices and sanctions. Now they say it's a loss of confidence that's just verging on panic. People just don't trust the currency anymore.

CORNISH: And we mentioned strong moves by Russia's Central Bank - they haven't helped. The latest was last night. What happened?

FLINTOFF: Well, the Central Bank raised its key interest rate to 17 percent, and that's a huge step. It was only about 10.5 percent before. The idea was that it would make it more attractive for people to keep their rubles in the bank since they'd be earning good interest. And it also makes it more expensive for currency traders and speculators who bet on the rise and the fall in the currency. As you say though, it doesn't seem to have helped because the ruble just kept falling. And there's a risk to raising interest rates that high because ordinary business people won't be able to borrow money to run their operations.

CORNISH: Corey, earlier you said a loss of confidence that's verging on panic, but what are you actually seeing from people on the street?

FLINTOFF: Well, some people are trying to convert their money into dollars and euros. But of course, that already amounts to a big loss for them. There doesn't seem to be anything like a panic yet. I went to some banks earlier today. I didn't see big lines of people. Most people that I did talk with said they're kind of resigned to waiting it out and seeing what happens. You know, I got caught in the currency speculation just last week. I had to change about $100, and I got 51 rubles to the dollar. And I thought that I was really hot stuff, but of course, I've already lost money. One other thing that we're seeing is that people who can afford it are taking their savings and they're buying cars and appliances. You know, I was at a big electronic store just the other day, and they were selling things like hotcakes. They were just going out the door - the theory being that it's better to have a new big screen TV or a refrigerator because it won't lose value as fast as your savings account.

CORNISH: Does this seem to be affecting people's attitudes towards President Putin at all? I mean, are they blaming him for this crisis?

FLINTOFF: Not so far. In fact, there was a piece of news today that underscored that Putin is still tremendously popular. He was named Russia's Man Of The Year in a nationwide poll. And that's for the 15th year in a row.

CORNISH: That's NPR's Corey Flintoff in Moscow. Corey, thank you.

FLINTOFF: My pleasure, Audie. Transcript provided by NPR, Copyright NPR.