Zero Hedge: “Following the biggest rout to the Ruble in ages, Russia – unlike Mario Draghi – instead of talking the talk decided to walk the bazooka walk and shocked all those long the USDRUB by unleashing an emergency rate hike (at 1 am in the morning) from the recently raised interest rate of 10.50% to… hold on to your hats… 17.00%, a 650 bps increase!
Opinion: This surprise announcement from Russia comes after the ruble got absolutely crushed on Monday, losing more than 10% of its value against the US dollar, as the ruble fell to below 64 against the dollar on Monday; earlier this year, one dollar bought about 35 rubles.
According to Bloomberg, “Russia derives about 50 percent of its budget revenue from oil and natural gas taxes. As much as a quarter of gross domestic product is linked to the energy industry, Moody’s Investors Service estimated in a Dec. 9 report. The economy may shrink 4.5 percent to 4.7 percent next year, the most since 2009, if oil averages $60 a barrel under a “stress scenario,” the central bank said yesterday.”
Oil closed at $55.72 last night.
High interest rates in the US under the Carter administration reached 20% in March 1980 leading to a sharp recession with output in the auto and housing sectors falling by over 20%.
With Czar Putin’s 80% approval rating at home in jeopardy, the odds of a black swan event, a metaphor that describes an event that comes as a surprise, grows daily.