The economic effects of the Ukrainian crisis

The sanctions imposed by Western countries on Russia for its involvement in the Ukrainian conflict and the drop in the oil price have triggered the collapse of the ruble.

România Internațional, 16.12.2014, 13:26

Russia has made a spectacular decision to save the ruble and curb the national currency crisis threatening the economy. The Central Bank has announced a 17% huge rise in its monetary policy interest rate, with the ruble having reached another historic record low as compared to the Euro and the dollar of late, against the background of the Western economic sanctions related to the Ukrainian crisis and of the drop in the oil price. According to Bloomberg analysts, that has been the biggest key interest rate increase in a single day since 1998. Since the onset of the crisis, the Russian currency has depreciated by over 45% against the dollar and by over 40% against the Euro. The Central Bank’s decision has aimed to check the considerable depreciation of the ruble, which despite the large-scale interventions to support it, on Monday went down to 60 units for one US dollar and 75 units for one Euro.

In another development, in Brussels, Ukrainian Prime Minister, Arseny Yatseniuk on Monday called for more EU emergency funding to avoid Ukraine’s default. At present, Ukraine’s currency reserves are at the lowest level in the last ten years, following the payment of its debts for the Russian gas and the efforts to support the Hryvnia exchange rate. Furthermore, the country’s economy has also been affected by the costs of fighting with pro-Russian separatists in Eastern Ukraine. The Russian-Ukrainian crisis has also impacted the currency markets in the region, the national currencies in the Republic of Moldova, Romania, Poland, Hungary depreciating significantly of late. The Governor of the National Bank of the Republic of Moldova, Dorin Draguteanu said that the Moldovan leu would further depreciate as compared to the main reference currencies:

“The market is influenced by certain basic factors, which cannot be eliminated by administrative measures. We are in quite a difficult situation; as the saying goes, if someone sneezes in Moscow, we, in Chisinau, have a running nose.”

In the last week alone, the Moldovan leu has depreciated by 1.4% against the US dollar and since the beginning of the year, it has depreciated by about 18%. The Romanian leu on Monday also reached a record low in the last 8 months. That was entailed by regional depreciation, sparked by the foreign investors’ more cautious attitude as economic analysts have explained. The president of the Financial and Banking Analysts’ Association, Radu Craciun believes that the evolution of the leu exchange rate in the last few days has been part of a regional trend. Similar depreciations have been reported by the Polish Zloty and the Hungarian Forint.