Russia’s central bank takes some heat out of the ruble crisis

Aggressive hikes in interest rates coupled with the central bank’s decision to accelerate the move towards a fully floating currency have helped to stabilise the Russian ruble over the past week. But while the authorities have managed to take some of the heat out of the country’s currency crisis, the full effects on the economy have yet to be felt. A weaker currency will keep inflation high and is likely to mean additional interest rate hikes. This in turn will ensure that credit conditions tighten further. Third quarter GDP data released this month painted a picture of an economy that was stagnating rather than collapsing, but we continue to think that GDP is on track to contract in 2015. Elsewhere in the region, Q3 GDP data were reasonably encouraging and suggested that, despite mounting headwinds from the euro-zone and Russia, growth in Central and South Eastern Europe has held up reasonably well.