The turn of events in 2014 was not thoroughly a matter of pride for Russia, which closed 2014 on a high risk note. The ruble crashed in spite of Russia's thriving economy and the factors to be blamed for this mishap were the decline in oil prices and the unsteadiness of global inflation. The economy suffered a major jolt when the Ruble hit a minimum during the second last week of December. While the forex market watched the downfall and the unsteady future it predicted for the US dollar, Russia stayed unnerved.
In the days that followed, a lot of speculation went around as to what the future of the ruble would be, since 2015 was starting in a couple of days. Russia responded by increasing its interest rates and attracting investments from all over the world. As a result, the Central Bank of Russia succeeded in announcing that the ruble crash had been resolved two days before the New Year. Ruble gained back its position at the nick of the moment and 2015 gave it a fresh start in the forex market. But has the Central Bank of Russia secured the future of the ruble adequately? Let us look at this aspect from the viewpoint of the world economy.
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At present, the Eurozone seems struggling to get out of the deflation with German surpluses crippling its chances of revival. The oil prices are at an all time low and are expected to go still lower in coming weeks. China and Japan are no more affluent economies owing to the lowering dollar. In this regard, it is only the ruble that is a currency that brings hope to traders and investors. The Central Bank of Russia has not changed its high interest rates and makes sure that investments flow into their economy. However, I is deeply affected by the lowering of oil prices and therefore, will look to reduce subsidies to increase more oil export/import from it.
A saving factor is that US dollar has remained above deflation in spite of the steady decline. This shows hope not only to Russia but also to the rest of the world. If Russia is able to keep the ruble stable, then the USD/RUB rates may be the most important market indicators in coming months. The Eurozone also can revive from the deflation only by using the Russian tactic of attracting more investments into the economy. However, since Russia is a smaller economy than the Eurozone, it can be safely said that with its strategy, Russia has secured the future of ruble adequately at least for the next three quarters. If European countries follow the same strategy, they will still fail to revive the pound, owing to the vastness of its economies. The ruble is also safe owing to this crippled condition of Eurozone.
Thus, it is a matter of time in which we will be able to see whether the ruble stays as stable at it is now after the Eurozone has revived, or whether it gets better than what it is at present. Kudos to the Russian government to have acted in time and brought back the ruble's lost glory.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.