Russians try to remain stoic in face of rouble crash

It would be a mistake to say that the bright lights and jolly Christmas trees decorating the streets of Moscow reflect the national mood as Russia hurtles towards what could be a deep economic recession.

But as Russia’s central bank battles to halt a dramatic fall in the value of the rouble, a stoic calm has settled on the capital.

“Our government might not know what to do but we Russians know exactly what to do,” said a pensioner waiting at a busy Moscow supermarket on Tuesday. Her shopping trolley laden with macaroni, sugar and flour spelled out the pessimistic view: stock up before it’s too late. The worst is yet to come.

Russia’s central bank raised interest rates by 6.5 per cent to 17 per cent late on Monday night in emergency action aimed at cooling inflation and encouraging Russians to keep their savings in roubles rather than safer foreign currencies.

But the move is likely to deal a major blow to the broader economy already staggering under western sanctions and a crash in the price of oil, Russia’s main source of foreign revenue.

In a statement that did nothing to boost public confidence, Sergei Shvetsov, deputy head of the central bank, said the decision to hike rates was a choice between "very bad and very, very bad". "What is happening would have been unthinkable even in the worst of nightmares a year ago," he told Interfax. "Unfortunately we can't always foresee even the short-term outlook of our financial markets."

Drastic tactics

As glum Muscovites queued in the freezing cold outside currency exchange booths, there were signs the central bank’s drastic tactics were not yet working. Having lost more than 10 per cent of its value against the dollar on Monday, the rouble continued to plunge, raising questions about Russia’s financial stability.

Adult Russians have lived through the economic meltdown after the Soviet Union’s demise in the 1990s and the short recession that followed the collapse of Wall Street in 2008. They are battle-hardy when it comes to crises.

But few expected the rouble, which has been tracking the decline in world oil prices since June, would go into freefall, evaporating their savings. At the beginning of the year it cost 33 roubles to buy $1. On Tuesday night, the price was hovering at 70 roubles.

Throughout the 14 years he has been Russia's paramount political leader, Vladimir Putin has taken care to guard against the rampant inflation that impoverished many of his countrymen during the turmoil of the 1990s. But even Kremlin officials admit that, with the weak rouble pushing up the cost of imports, the battle to contain prices has been lost this year.

After rising more than 9 per cent in November compared to a year ago, inflation is expected to move into double digits in early 2015, putting an immense strain on household budgets. Food prices have risen by a staggering 25 per cent, driven by retaliatory sanctions that saw Putin ban imports of meat, vegetables and dairy products from western countries in August.

In his annual state-of-the-nation speech this month, Putin warned Russians to prepare for hard times and tighten their belts. However, the gradual depreciation of the rouble has been having the opposite effect, prompting Russians to splash out on expensive purchases.

Even though the central bank has raised interest rates six times this year, demand for mortgages has been soaring as Russians grab at what they see as the last opportunity to invest in real estate. After a steep slump this year, sales of new cars perked up in November in another sign of last-minute Russian self-indulgence. Luxury cars – the Porsche and the Lexus – have been selling like hot cakes as rich Russians convert their money into more durable status symbols.

Most Russians associate the Putin years with improving living standards and financial stability, but are facing the fact the rouble has become the world’s worst-performing currency.

Support for Putin is rock-solid among poor, undereducated Russians who are in thrall to state television propaganda that holds the West to blame for the country’s economic problems, said Lev Gudkov, a sociologist at the Levada Centre polling agency in Moscow. However, many middle class Russians are finding fault with Kremlin policies as savings evaporate.

Simmering protest

Gudkov said that public anger will shift towards the government, the bureaucracy and eventually to the Russian president. Protests will erupt and the Kremlin will employ repressive tactics to quash unrest.

Boris Nemtsov, a former first deputy prime minister who is now one of the leaders of the Parnas opposition party, warned that the government did not have enough money to spend its way out of the crisis.