Russia Update: Ruble Value Falls To 63/$1 After Central Bank Halts Foreign Currency Buys

August 3, 2015
Photo by Artyom Sizov

Following the lowering of the key rate to 11% by Russia’s Central Bank, and with Brent crude continuing to fall, the value of the ruble fell to 63 to the dollar and had only slightly rallied at midday.

Welcome to our column, Russia Update, where we will be closely following day-to-day developments in Russia, including the Russian government’s foreign and domestic policies.

The previous issue is here.

Special features:

‘I Was on Active Duty’: Interview with Captured GRU Officer Aleksandrov
Meet The Russian Fighters Building A Base Between Mariupol And Donetsk
‘There Was No Buk in Our Field’
With Cash and Conspiracy Theories, Russian Orthodox Philanthropist Malofeyev is Useful to the Kremlin

Russia This Week:

Is ‘Novorossiya’ Really Dead?
From Medal of Valor to Ubiquitous Propaganda Symbol: the History of the St. George Ribbon
What Happened to the Slow-Moving Coup?
Can We Be Satisfied with the Theory That Kadyrov Killed Nemtsov?
All the Strange Things Going On in Moscow

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Russian Military Mi-28N Crashes During Airshow, Grounding Entire Fleet

The Russian military is losing aircraft at an astonishing rate, far faster than NATO has lost aircraft in multiple recent conflicts — but these aircraft aren’t being shot down, they’re just failing.

This weekend a Russian Mil Mi-28N attack helicopter crashed during an airshow in the city of Ryazan, apparently do to technical failure. Russian media has reported that a failure in the aircraft’s hydraulic systems are to blame. Now the entire fleet of Mi-28s have been grounded while the incident is investigated.

RBTH reports:

The failure of the hydraulic system caused the crash of the Mil Mi-28N helicopter at Dubrovichi testing ground near Ryazan, Russian Air Force Commander-in-Chief Col. Gen. Viktor Bondarev told the press on Sunday.

“During a training flight of Berkuty piloting group today at the moment of breaking up the control system of the Mi-28 failed, a warning about the failure of the second hydraulic system appeared and the voice signal ‘Failure of the hydraulic system’ switched on,” he said.

A spokesperson for the Russian Defense Ministry also said on Sunday that “all demonstration flights that were made today as part of the Aviamix program at the Dubrovichi testing ground in the Ryazan region, where the Mi-28 helicopter had crash landed, were performed strictly in accordance with the safety requirements.”

The Russian propaganda outlet RT has posted video of the moment of the crash. As you can see, one pilot escapes the burning wreck after the aircraft crashes, though the Russian media reports that the other pilot died.

As we have been reporting, this is at least the 7th Russian aircraft to crash in the last two months. On July 14 a Russian Tupolev Tu-95 “Bear” strategic bomber crashed near the Chinese border.
That crash came just one week after an Su-24M crashed, the 5th incident in a single month:
One reason for all the crashes — the intensification of drills and air patrols, many of them occurring near airspace belonging to Russia’s neighbors.

The Atlantic Council reports:

Nato member aircraft were forced to conduct more than 500 scrambles over Europe in 2014 – a fourfold increase on the previous year. Nearly 85% of these were to intercept Russian aircraft. This year, there have already been more than 300 scrambles, according to data provided by Nato to the Guardian. These are some of the highest numbers since the end of the cold war.

A scramble doesn’t imply a breach of sovereign airspace or military aviation rules. In fact, in most cases, there is no breach. Last year, there were 10 incursions by Russian aircraft into airspace belonging to Nato members. Eight of these were over islands belonging to Estonia (six over remote Vaindloo alone). The others were into Norwegian and Polish airspace in March and April respectively, and both lasted seconds.

There have been no incursions recorded by Nato’s 28 members in 2015. A Russian aircraft did, though, briefly enter airspace belonging to Finland, which is not a Nato member, on 26 June. While Swedish armed forces have counted nine incursions into Sweden’s sovereign airspace so far this year. The country’s airspace was breached 12 times last year….

 Last week the UK’s RAF intercepted ten Russian military aircraft flying over the Baltic Sea: “4x Sukhoi Su-34 Fullback attack planes, 4x Mikoyan MiG-31 Foxhound fighters and 2 x Antonov An-26 Curl transport aircraft,” and on July 29, “NATO interceptors identified 12 Russian military aircraft flying near the Latvian border: 3x An-76 and 1x Il-76 cargo planes, 4x MiG-31s and 4x Su-24,” according to The Aviationist.

Photos of 10 Russian warplanes intercepted by RAF Typhoons over the Baltic Sea….in one sortie!

On Jul. 24, the Royal Air Force Eurofighter Typhoon jets intercepted and identified 10 (!) Russian military aircraft flying in international airspace over the Baltic Sea. The RAF Typhoons from 6 Sqn at RAF Lossiemouth, in QRA (Quick Reaction Alert) at Amari airbase, Estonia, were launched as a large formation of Russian planes flew close to the Baltic States airspace (most probably going to or returning from Kaliningrad Oblast).

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Aug 04, 2015 00:14 (GMT)

Famously, Russian nuclear-capable strategic bombers were intercepted off the west coast of the United States during on the 4th of July, the day the US celebrates its declaration of independence from Great Britain.
James Miller
Russia Expels Swedish Diplomat

A Swedish diplomat  has been expelled from Russia, apparently in retaliation for Sweden’s earlier expulsion of a Russian Embassy employee, Russian and European media reported.

Last year, a suspicious submarine was seen off the coast of Sweden, and in November, Sweden confirmed it was a “foreign vessel” but stopped short of blaming Russia, though it was widely believed to be a Russian submarine.

— Catherine A. Fitzpatrick

Ruble Value Falls To 63 to US Dollar After Central Bank Halts Purchases Of Foreign Currency

Russia is going through its “nearly traditional August panic” on the currency market, reported today.

“Having fallen as low as 63 to the dollar and 69 to the euro this morning, the ruble was trading at $62.54 and €68.45 as of 15:00 Moscow time today, about 2 rubles higher than in the previous day of trading, the highest since March 4, 2015. Both internal and external factors are working against the ruble now.

Russia’s Central Bank had halted purchases of foreign currency on July 29 in order to replenish Russia’s reserve, Bloomberg reported.

Operations were suspected as a result of a “growth in volatility on the domestic currency market” said the Central Bank in a statement on its website.

Currency purchases were reduced from $200 million to $160 million, shoring up the ruble by 1.4 percent.

Bloomberg forecast last week that the Central Bank would cut its key rate by half a point to 11 percent at their July 31 meeting, according to 25 of 34 forecasts. It had already lowered the key rate by a total of 5.5 points this year following an emergency increase in December.

And indeed, the Bank did place the rate at 11%, although this and the purchase of foreign currency in the reserve undermined the confidence of investors in the ruble, said Maksim Vasin, senior analyst at the National Rating Agency (translation by The Interpreter):

The lowering of the rate was called to lower producers’ costs, but they were not reduced enough to compensate for the fall of the ruble, taking inflation into account. The growth of the rate additionally pressures producers who pass along the margin to consumers. Most likely, mid-term, inflation will be high and will not weaken; there prospect for further lowering of the rate is completely absent; likely the rate should be raised  to support [Russia’s] currency — otherwise we will observe a weakening of the ruble until the end of the year and even in the long term.

The schedule for the payout of dividends sustains demand for foreign currency which actively pressured the ruble last week; finally oil prices continue to be a factor, with Brent crude falling 16.8% in July, and as August begins, appears set to reach the lowest price of the year, which was in January.

Russian experts cited the effect on the ruble of China’s economic downturn, as there were less purchases of oil in China’s industrial sector. In June, Saudi Arabia also posted a record extraction of oil, and Baker Hughes reported an increase in US oil rigs for the first time after more than 7 months of decline.

Also expected to affect the price of oil is the increase in production of Iran, now that sanctions have been lifted. The price of fuel is expected to go up as winter approaches, which gives some analysts such as Andrei Kochetkov of Open Broker a certain confidence. He believes the market will correct itself and such low oil prices will not be maintained. He predicts $60 a barrel at the end of the year, and a corresponding ruble value of 53-58 to the dollar.

— Catherine A. Fitzpatrick