On 6 March, European Central Bank President Mario Draghi said that Russia is already paying a heavy price for intervening in Ukraine.
“So far we’ve seen a major impact on the Russian economy and the Ukrainian economy, and some financial impact on countries that border that area,” Draghi said. “The impact on the Russian economy is severe.”
On 3 March, Russia’s Central Bank was forced to jack up interest rates to 7% from 5.5% in a bid to stabilise markets and counter the impact of a near 10% decline in the value of the ruble this year.
On 6 March, global credit rating agency Fitch Ratings
said the crisis in Ukraine will become a burden on Russia’s economy but Russia’s sovereign credit profile is still strong. Weakened by currency depreciation and capital flight, the risks for the Russian economy increased after the crisis in Ukraine according to Fitch. Fitch underlined that the situation in Russia is unpredictable but it has a strong credit profile, which means its BBB sovereign rating is not affected. “Higher energy prices and a weaker rouble should provide a fillip to sovereign finances,” Fitch said.
Russia is the world’s biggest energy exporter and its economy is highly dependent on energy exports. “We recently revised our growth forecasts for 2014 and 2015 to 1.5% and 2%, respectively,” Fitch said.
Chris Weafer of Moscow investment group Macro-Advisory, wrote in a note to investors the big problem Russia faces is the threat of a fall off in capital inflows from foreign investors and a spike in capital outflows from Russians just at a time when the economy needs a big and sustainable boost in investment spending.
“It is particularly interesting that President (Vladimir) Putin specifically mention the markets’ reaction on Monday (3 March). The weaker ruble, in particular, has the potential to lead to a drop in public support for the government. Over the past two days in Moscow all I hear are concerns about the currency and the economy rather than about Russia’s ambitions in Ukraine. It seems the Kremlin is paying heed to those concerns also,” Weafer wrote on 5 March.