In January, Russia’s central bank predicted that the country’s economy would decline by three percent. Yesterday, the bank reexamined the issue and posited that the economy would actually slow by 3.5 to 4 percent. In response, the central bank decreased interest rates by one percent, in hopes of resuscitating economic activity.
Since September, the ruble lost 40% of its value relative to the dollar. Low oil prices and political sanctions are the chief factors responsible for the currency’s decline. Oil production (the country’s largest export) has contracted significantly and is expected to remain at low levels in the coming years. Further, the European Union is poised to implementmore severe sanctions if Russia maintains its military actions in Ukraine. This scenario is more complicated by the fact that Putin’s approval ratings have increased since Western sanctions were initially implemented – they’re currently at 86%. The combination of stagnant oil prices and lack of political will to end the conflict with Ukraine seem to forecast that the Russian economy may not rebound for a few years.