The price Russia pays for stopping the western-backed blood bath by Maidan-controlled Kiev in anti-Maidan East Ukraine
Originally appeared at Forbes
Herman Gref, the respected CEO of Russia’s Sberbank, said Tuesday that there is a banking crisis in his country…and it is the worst he has seen in two decades.
“What we see now in Russia is a large-scale banking crisis,” Gref said to Moscow journalists today. He reportedly said this is the worst crisis he has seen in Russian banking since the ruble crisis in 1998. Back then, the Russian government, just seven years into its experiment with Western economics, defaulted on its debt and inflation hit 84%.
Russian banks have been sanctioned by the West in retaliation for Moscow’s support of east Ukraine’s separatist movement. Moreover, the central bank removed the ruble-dollar peg in December. Back then, the ruble was trading with a band that kept it in the 30s. Once the ruble was allowed to free-float, it quickly rose to the low 70s, it’s weakest point against the dollar in 15 years.
Russia is light years ahead of 1998. It has over $350 billion in currency reserves at the central bank. That’s essentially a rainy-day fund monetary authorities there can use to shore up banks in trouble, and use to buy rubles, thinning out the money supply.
Inflation is also better than it was 20 years ago. Russian inflation is still high, at 15%, but it is expected to be cut in half next year, according to Barclays Capital’s estimates.
The economy is clearly suffering from an unhealthy mix of weak oil prices, sanctions, and a ruble that’s 38% weaker than it was a year ago today. It is now running a small deficit of roughly half a percent of GDP.