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Russian economy plunges as Rouble collapse

The rouble’s collapse spurred Russians to rush out and buy imported cars, refrigerators, washing machines, TV sets and other major appliances in a bid to spend their roubles before stores put on new higher price tags.

The rouble hit a record low of 80 to the dollar — down a catastrophic 24 per cent — before making a modest improvement to trade at 72 to the dollar by late Tuesday afternoon. The market plunge defied a whopping pre-dawn interest rate hike of 6.5 per centage points by Russia’s Central Bank aimed at defending the currency.

On the streets of Moscow, panicky consumers rushed out to buy home appliances before they became even more expensive.

Putin’s popularity has been based on oil-driven economic growth that has helped increase incomes during his 15-year rule. The rouble’s collapse, driven by a combination of slumping oil prices and Western sanctions, is denting that pillar of his power

Russian President Vladimir Putin faces a major new challenge after a catastrophic fall in the value of the rouble, which hit a new low on Tuesday despite the Central Bank’s desperate efforts to halt the selling.

Along with Western sanctions, the rouble’s depreciation has been driven by a slump in the price of oil to below $56 a barrel from a summer high of $107. The bulk of the government’s revenues come from oil.

Sanctions imposed by the US and the European Union in response to Russia’s involvement in the conflict in Ukraine are putting pressure on the rouble. As Tuesday’s currency crisis unfolded, the White House announced that President Barack Obama will sign legislation slapping new sanctions on Russia.

Russian companies are having trouble refinancing their dollar and euro debts in Western capital markets because of the sanctions.

“So they’re pushing to acquire euros or dollars to pay off external debts in a manner in which they would not have otherwise had to do, but for the sanctions,” Hanson said.

In other words, they’re scrounging for dollars and selling roubles to get them — sending the rouble down farther.Vladimir-Putin-Russian-Ruble

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