The Russian central bank increases the cost of money

The combined effect of economic sanctions combined with the drop in oil prices has brought the Russian country in a state of deep recession, that the Central Bank of Russia intends, for now, to fight with a monetary maneuver, on a direct indication of Putin. Current levels of the ruble report that the Russian currency, the beginning of the year, has lost half its value against the dollar and about 42% against the euro. This situation has led to a general increase in prices, which stood at the time, about 10% to a value, but that is surely destined to grow and has already resulted in the presence of commodity prices, in some shops, expressed in currencies foreign. The response of the Bank of Russia has been to increase by six points and half the interest rate, which is so now up to 17%, compared with 10% previously in force and far of 5.5% that prevailed at the beginning year. The main purpose is to stimulate the return of deposits and therefore investment in rubles, with the hope that the value of the cost of borrowing is lower inflation and therefore able to attract new conversions in the national currency. According to analysts the national macroeconomic values could derive benefits with this measure, but, on the other hand, with a price so high credit to pay the costs of the operation will be businesses and families, whose economic outlook is likely to increase further. According to some estimates the drop in gross domestic product could rise to 4.5%, if the unit prices per barrel of oil should remain at the current share price of $ 60. With this measure Putin can put a brake on inflation but does not stimulate lending to businesses, squeezing further the development of the productive fabric of the country, which is a weakness of a system is based too much on the sale of raw materials. The head of the Kremlin acts on the short term, but this measure does nothing to start a structured process that will lead Russia to a diversification of its production to absorb possible economic downturns, such as the present, due to the decrease in the prices of materials first, for reasons external to the phenomenon of sanctions. Russia is now in a situation doubly negative, which helps on the political international objectives of Washington. Of course the sanctions have caused the country's isolation from the international financial markets, blocking financial assets Russian who enjoyed great liquidity, but the effect of the decrease in oil and gas, is likely to be far worse for an economy that could absorb, at least in part, the effects of sanctions selling its products to other countries, provided that the value of these goods remain on the price much higher. The war unleashed by the Arab oil to counteract the lowering of the value of American oil, due to new extraction techniques, has made Russia a victim perhaps unexpected, but perhaps also calculated, which has an economy that does not seem to hold two simultaneous attacks that scope. The same Russian Central Bank has shown a slow pace in its efforts to combat inflation which, it seems, due to the fact of having to deal with an unexpected event. Some forecasts indicate that the Kremlin intends to cut public spending as a further element to combat the effects of falling oil prices. This element, however, is a real risk of social stability and consensus toward Putin, if applied on a social fabric already tried by the economic crisis. The Russian leader with the increase in the cost of money to defend thinks inflation as well as the country's reserves, including those of the oligarchs who support it, rather than trying a popular consensus, which hopes to keep stimulating the nationalist element to which Russian society is still very sensitive. It shall be checked until it is put to the test the patience of Russians.