Stunned Russians Stock Up on Goods Awaiting Putin Fix for RubleJames Hertling
Stung by a ruble collapse that has evoked memories of post-Soviet dystopia, Russians are stocking up on consumer goods and foreign currency as their leaders struggle to contain the worst financial crisis since 1998.
With companies such as McDonald’s Corp. and Renault SA raising prices, policy makers tried for a second day to reverse the rout in the ruble with emergency measures. Analysts said next steps may include gold sales and capital controls, a move Prime Minister Dmitry Medvedev signaled today was unlikely.
Tomorrow, President Vladimir Putin will hold his annual news conference in one of the most difficult moments of his 15-year reign: Oil prices are collapsing, finger-pointing among officials is breaking into the open, new sanctions over Ukraine are possible and the country is careening toward recession.
“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.”
Following a freefall yesterday that took the currency down as much as 19 percent, the ruble rebounded today. It was up 6.8 percent at 63.2731 per dollar as of 5:36 p.m. in Moscow after the Finance Ministry announced that it bought rubles, which have lost 48 percent this year. That came a day after the central bank jacked up its interest rate to 17 percent from 10.5 percent to stem the rout.
“Certainly, there’s a panic in the markets,” Vitaly Isakov, a money manager at Otkritie Asset Management in Moscow, said by e-mail. “The Finance Ministry is sending a signal that it sees the ruble as seriously undervalued and that at current levels it makes sense to sell dollars.”
Bets on future price swings for the ruble are the highest in the world after the currency’s three-month implied volatility jumped 17 percentage points this month to 45 percent today.
The higher interest rate 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.
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. “It would’ve been easier if the ruble fell quickly as it did in 1998. I am trying to spend the money before it loses value.”
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 transfered a portion of his savings into dollars yesterday 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.”
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.
The ministry has $7 billion available to sell, according to its statement today, 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.
Today’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 Inc.’s Moscow-based economist, said by e-mail today. “It will be even better if this is augmented by strong foreign-exchange interventions by the central bank.”
The ruble sank beyond 80 a dollar yesterday, a record low, as it became clear that the surprise 650 basis-point interest rate increase wouldn’t alter its course. It pared declines following comments from Economy Minister Alexei Ulyukayev, who denied speculation the government would impose restrictions to stop Russians from converting cash into dollars.
“This is most tragic,” said Irina Volkova, a manager at a construction company, getting her nails manicured in central Moscow. “Every morning, I wake up and check the rate thinking ‘What if there was a default? What if we have to prepare for a default?’ The worst thing is, no one knows when it will end.”