In the past week, the Russian ruble has seen a record decline as economic sanctions from the West and a dramatic drop in the price of oil has disrupted the financial stability of the nation. On Monday, the U.S dollar rose as high as 57.5090 against the ruble. The ruble has lost around 70 percent of its value since the beginning of the year.
In November, the country’s economy shrunk for the first time in more than five years. According to the Russian economy ministry, the country’s gross domestic product (GDP) fell by 0.5 percent during the month. This was the first drop since September 2009. Officials are predicting a 4 percent contraction in GDP next year if conditions remain the same. It was also reported that in December, Russia’s manufacturing sector shrank for the first time in six months.
The country’s slowing domestic economy and the dramatic slump in international oil prices have raised investor’s concerns about the financial stability of the country. Russia’s fortunes are heavily tied to the price of oil and a drop in prices creates a significant hit to the country’s bottom line. The decline in the price of oil accelerated this month after OPEC refused to cut production to ensure that it retained its market share. Some investors are actively avoiding assets with exposure to Russia until some stability returns to the ruble.
The ruble saw several days of stabilization after remarks by Russia President Vladimir Putin and other government officials attempted to calm fears about the decline in the currency. On Christmas Day, the U.K.’s Financial Times newspaper reported that Finance Minister Anton Siluanov stated liquidity fears had receded and the currency had found its equilibrium. Unfortunately for Russia, the stability didn’t last.
The economic sanctions that have been imposed on Russia have had a significant effect on its economy. The sanctions were imposed on the country after military incursions in Ukraine, the annexation of the Crimean Peninsula, and the suspected arming of rebels fighting against the Ukrainian government. It is estimated that the Russian economy has lost nearly $100 billion this year.