1 Russia raises interest rate to 17% (Larry Elliott in The Guardian) Russia’s central bank has taken drastic action to halt the rouble’s freefall on the foreign exchanges by raising interest rates by 6.5 percentage points to 17%.
After a day of turmoil dominated by fears that a crashing global oil price would devastate Russia’s energy-dominated economy, an after-hours meeting of the central bank in Moscow decided emergency action was needed to prevent the rouble’s collapse.
The bank said the increase in borrowing costs – which will deepen Russia’s recession if sustained for a prolonged period – was needed to end currency depreciation and to combat inflation. Higher interest rates tend to make currencies more attractive to foreign investors and the rouble rose against the dollar in the wake of the surprise announcement.
The huge jump in interest rates was seen by analysts as an attempt by the central bank to show that it was determined to protect the rouble. Earlier, Russia bought roubles for dollars on the foreign exchanges but failed to prevent the biggest one-day decline in the currency since Russia’s debt default in 1998.
Although the near-halving of the cost of crude oil since the summer should eventually boost global growth by increasing consumer spending power and reducing business costs, investors are concerned that lower oil prices reflect softer demand from a weakening global economy.
Neil Shearing, chief emerging market economist at Capital Economics, said there was now speculation that Russia would resort to capital controls to defend the rouble. Oil and gas account for 70% of Russia’s exports and Moscow needs an oil price in the region of $100 a barrel to balance its budget. Even before the dramatic announcement of the interest rate rise, the central bank said the economy would contract by 4.5% in 2015 if the oil price remained at its current level for the next 12 months.
2 Greek economy faces ‘irreparable damage’ (BBC) Greece’s economy faces “irreparable” damage from the ongoing political crisis, the boss of its central bank has warned. “The crisis in recent days is now taking serious dimensions…and the risk of irreparable damage for the Greek economy is now great,” said Yannis Stournaras.
Greek politicians will start voting on Wednesday for a new Greek president. There will be a snap general election if the government nominee loses. The political uncertainty has rattled Greek markets over the past week. Greece’s economy emerged from a six-year long recession in the first quarter of the year.
However, the size of Greece’s economy is still about a quarter below the peak it reached before the severe recession and debt crisis triggered by the global financial crash. And conservative Prime Minister Antonis Samaras’s decision to call an early vote in parliament to elect a new president has caused fresh concerns. Greece’s government has warned of a catastrophe if snap elections are called and left-wing anti-bailout party Syriza wins, but Syriza has accused the government of fear mongering.
3 India tourist hurt by superbugs (Nayan Chanda in Straits Times) India has recently launched an online visa programme in the hope of doubling the inflow of tourist dollars, which has been well below the country’s potential.
Quick delivery of visas is, however, only the first and easiest step. It is much harder to provide the facilities for a safe and enjoyable visit for millions wishing to taste what the country’s tourist promotion has billed as “Incredible India”.
It is high time the country redoubled its efforts to tackle the emergent threat of superbugs that has increasingly come to be associated with India. In recent years, the so-called superbugs – the catch-all for pathogens resistant to known antibiotics – have caused thousands of deaths around the world.