Putin Will Face Media Thursday in ‘Moment of Truth’

Russian President Vladimir Putin will face questions from the media at his annual press conference Thursday after the central bank announced extraordinary steps to ease the country’s worst economic crisis since the 1998 default.

Sanctions imposed by the U.S. and Europe after Putin’s invasion of Crimea and the tumbling price of oil have pushed Russia’s economy into freefall. The ruble sank to a record low against the dollar this week, Russian banks and companies face $120 billion in foreign currency debt payments next year and consumers throughout the country are going on buying sprees to spend their money before its value plummets further.

“This is a moment of truth” for Putin, said Masha Lipman, an independent political analyst in Moscow. “It’s no longer possible to go on in the same fashion. The economy is tumbling. The time has come for a definitive choice. Doing nothing won’t solve the problem.”

The central bank is struggling to stem the undertow. After jacking up interest rates this week to 17 percent from 10.5 percent, it bought more rubles Wednesday and announced changes in foreign-exchange rules to make it easier for companies and banks to survive the debt crunch.

The measures include allowing banks to use a third-quarter exchange rate -- before a plunge in oil prices accelerated the ruble’s decline -- to value risk-weighted assets, according to a statement on the central bank’s website. It didn’t specify the rate or say how long banks would be allowed to ignore market values in their accounting, meaning they essentially hold off taking losses.

Stabilize Ruble

The new rules are intended to balance supply and demand to help stabilize the ruble rate, central bank First Deputy Governor Ksenia Yudaeva said in an e-mailed statement Wednesday.

“This is a big boost as some banks would fail to meet central bank regulatory capital ratios at their current levels,” Natalia Berezina, a banking analyst at UralSib Capital, said by phone.

After declining as much as 19 percent on Tuesday, the ruble rebounded Wednesday. Bets on future price swings for the currency are the highest in the world after its three-month implied volatility almost doubled this month to 52 percent.

The higher interest rate announced this week will crush lending to households and businesses and deepen Russia’s looming recession, according to Neil Shearing, chief emerging-markets economist at London-based Capital Economics Ltd.

Retail Sales

Many Russians are shielded from the scope of the crisis. State-run media outlets steered any criticism away from Putin and portrayed the government as ready to take firm action.

Folks are taking action, too.

November retail-sales growth unexpectedly accelerated to the fastest in six months as people snapped up consumer goods out of concern prices will rise further. Apple Inc. on Dec. 16 halted online sales there -- just three weeks after boosting the price of an iPhone 6 by about 25 percent to 39,990 rubles. The value of that iPhone sale when converted into dollars already has plummeted to about $633 from $847.

“There is a feeling that we are falling into an abyss,” said Elena Novgorodova, a 36-year-old manager at a chemical trading firm in Moscow. “I’m trying to spend money before it loses value.”

Government Assurances

Over a recent week, she bought about 30 kilograms of poultry, beef and pork, 10 packs of buckwheat and rice, clothes and 3,500-ruble Ecco shoes for her daughter. She also stockpiled cosmetics including two flasks of Chanel perfume for 5,000 rubles each and Yves Rocher lipsticks for 700 rubles.

Vladimir Rudenkov from Voronezh, a city about 500 kilometers (311 miles) from Moscow, was one of those ignoring the government-media assurances. He transferred a portion of his savings into dollars on Tuesday and said he regretted that he didn’t exchange it all.

“The situation is catastrophic,” said Rudenkov, a 35-year-old manager. “I don’t believe that the ruble collapse is happening only due to the falling oil prices. The government is the one to blame as it didn’t defend the national currency.”

Banks in Moscow, including Citigroup Inc., ZAO Raiffeisen and Khanty-Mansiysk Otkritie Bank, Tuesday reported a surge in demand for dollars and euros.

Draining Reserves

The central bank, which already drained $10 billion of its foreign currency reserves this month on interventions, will probably need to spend another $70 billion to stem the slide, according to a survey of economists. Analysts said next steps may include gold sales and capital controls, a move Prime Minister Dmitry Medvedev signaled on Wednesday was unlikely.

The Finance Ministry has $7 billion available to sell, according to its statement, a sum that pales in comparison to the central bank’s $416 billion cash pile. Russia has spent about $87 billion of these reserves this year in unsuccessful attempts to slow the ruble’s slide.

Wednesday’s purchases are “probably part of a concerted effort by the government to convince the public and market participants that the ruble is undervalued,” Ivan Tchakarov, Citigroup’s Moscow-based economist, said by e-mail. “It will be even better if this is augmented by strong foreign-exchange interventions by the central bank.”

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