Sanctions by the U.S. on Russian businesses and officials, had a negative impact on the Russian rouble as it fell by more than 4 percent against the dollar this week.
Investors lost their confidence and sold their assets as they feared more sanctions could be imposed which would increase market risk. The sanctions imposed were narrowed down to two reasons:
The first being the U.S.’ response to allegations that Russia interfered in the 2016 U.S election. The other being another allegation that the Russians are responsible for the poisoning of Russian ex-spy, Sergei Skripal and his daughter.
If the U.S. keeps targeting Russia, then this may pose a political issue for Russia, whose President, Vladimir Putin, was recently re-elected. The Russian economy is in a state of recovery, and these sanctions may worsen the issue as the Russian government will have to spend money budgeted for other tasks, to bail out sanctioned Russian companies.
However, Russia is optimistic this current rouble depreciation is temporary. Even Russian businesses are refuting the claim that a decrease in the value of the rouble has affected operations.
Russia is preparing to act if there are risks to the country’s fiscal stability. One such response would be to resume foreign currency repo operations if necessary. Consideration will even be given to possible retaliation against the U.S.
After a 1.5 percent increase in the Russian economy in 2017, a floating rouble rate could have an adverse effect on the Russian economy which was projected to grow by 2 per cent in 2018.
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