The Russian rouble has taken a nosedive to a new record low at 41 to the dollar and an unprecedented 52 to the euro.
It has taken months of hammering as investors shun Russian assets over the crisis in Ukraine and Western sanctions which have starved Russian firms of foreign currency. On top of this oil prices have dropped to multi-year lows. One Moscow resident believes America is to blame for the drop in oil prices, saying “It’s some kind of new sanctions,” adding, “what will hit us next?” Another resident fears the worst:
“It (the rouble fall) could result in a crisis: I think there will be fewer jobs, there will be layoffs and food will get more expensive.”
Russians are feeling the pinch of a Russian embargo on food imports from the EU which has aggravated inflation which is at an annual rate of almost 8 percent. Capital flight reached 75 billion dollars in the first half of 2014.
With half of the federal budget reliant on oil and gas, the Kremlin has had to find other sources of revenue to replace the black gold. A one dollar drop in oil price effectively costs the government 1.7 billion dollars.
“While defence expenditures have grown quite significantly the government imposes new taxes on real estate, new financial burdens on small business and increases medical insurance payments,” explains political analyst Maria Lipman.
Russian President Vladimir Putin remained defiant ahead of peace talks, warning the US that sanctions were hindering peace efforts in Ukraine.
“Attempts to pressure Russia by means of one-sided, illegitimate restrictive measures are not bringing us towards a resolution, and are complicating dialogue,” he said.
Relations between Moscow and Washington are at a post-Cold War low over the annexation of Crimea and the crisis in Ukraine.