Ruble Sinks, Medvedev Orders Central Bank Intervention
June 5, 2012 • 7:13AM

At the end of last week the Russian ruble reached 34 to the U.S. dollar, capping off a 13% drop during the month of May. The currency's slide was the lead news in all Russian media, as well as the topic of a series of press conferences and emergency meetings by top officials. On Friday, Deputy Prime Minister (for the economy) Arkadi Dvorkovich was televised uttering assurances that Russia has enough foreign currency reserves to defend the ruble. On Saturday Prime Minister Dmitri Medvedev held an urgent conference on the matter with Dvorkovich, 1st Deputy Prime Minister Igor Shuvalov, Finance Minister Siluanov, Central Bank head Sergei Ignatyev, and the CEOs of major banks such as the state savings bank Sberbank and VTB, on what to do about the sliding ruble exchange rate and capital flight ($35 billion in the first quarter of 2012).

Ignatyev, reporting to Medvedev, cited the crisis in Europe and the steep decline of oil prices as proximate causes of the ruble's fall. Half of Russia's foreign trade is with Europe. He said that the Central Bank had already intervened to the tune of $200 million on Friday, but that if oil prices continued to drop, the ruble would weaken further. Medvedev pressed Ignatyev to intervene, while the word in Moscow financial circles is that if the CB intervenes "too much," then capital flight (much of it being Russian private company owners taking their revenues offsore) will shoot up like a rocket.

Besides such market explanations, there is necessarily an element of political targeting in capital flight from Russia. Typical of ongoing nasty articles in the London/Wall Street press, Forbes magazine just came out with one called "The Market Is Signaling The End Of Vladimir Putin," which cites the 15% drop in the ruble and 30% Russian stock market slide since the Russian Presidential election, as an "investor" vote against President Putin.