Long term high interest rates plus high cost of import supplies will likely strangle the economy though. Increased demand for domestic goods due to higher import prices is a good thing, but one needs capital to operate most businesses. When interest rates are high you can't borrow, and when political situation is flaky fewer people will want to buy equity.
At 14% interest rates there's basically no way to afford capital investments. Unless you are buying a printing press to print more money.
1) Increase the rate to something truly insane like 1000%
2) Introduce currency controls and force everyone to use Ruble
Neither of these options are good, but #2 seems much more likely.
I don't know if it's going to be effective at all, just trying to find the most charitable explanation for CB.ru actions.
Where it does make a difference is that long end bonds (OFZ 28s) are now yielding 15%. That's 15% for 13 years ;) Chunky yield in the long end. That will tempt the long term investors in (IF big if, they don't impose controls). Care to catch the falling knife?
don't forget that even according to Russian government 60% of currency trading is insider based, ie. those banks and big traders are tipped (it is Russia after all - 137th place out of 170 rated in world corruption index) when for example Central Bank is to perform a ruble supporting "intervention". SEC and Fed cozying up to Wall St have nothing on how things are done in Moscow :)
>Increased demand for domestic goods due to higher import prices is a good thing
That would probably be the case for any normal country, yet not for Russia. Due to food import sanctions self-imposed by Russia, the price of foreign foods has increased, and the domestic foods prices immediately followed it as a result thus directly increasing consumer felt inflation. And there is no way Russia can noticeably increase food production, at practically any food prices. Instead the only option is to buy in other countries like Brazil, which means paying dollars which would mean even higher ruble prices for these foods on Russian market.
Like during 199x years, for the next several years Russians will be back to dollars (and "black" accounting/contracts/salaries/offshoring) while government would implement significant obstacles to such "dollarisation" of the economy. Which means an immense business opportunities for BTC and other forms of money infrastructure allowing to perform "point A" - rubles in Russia - to "point B" - dollars in a Western country - and which are less subject to the [Russian] government control.
It is kind of surreal - i was inside USSR when it collapsed due to the low oil prices of 198x. I didn't understand it back then. Now i watch this, similar, collapse of smaller, Putin's, version of USSR from comfortable "orchestra" seats (Silicon Valley) and can't stop wondering how things haven't changed a bit.
Edit: to the "twelve40" below - i lived in the USSR/Russia the first 28 years of my life. One can write a huge number of PhD dissertations on the problems of Russian agriculture - legal, social, historical, economical, climate-related, psychological, etc... About the same question is why Russia can't produce a good car, at any prices :)
It will be a bit more complicated this time.
They might not have any other option though.
The more relevant short term argument that I am referring to, is that if they were to "squeeze" the offshore market by disallowing or limiting the lending of RUB by local banks to offshore banks, then they could easily engineer a massive squeeze on the rouble offshore. That is all those people who are short RUB would suddenly find that "rolling" those positions (that is, borrowing RUB so you can sell it), suddenly costs a fortune. This is even true in FX forwards because ultimately these are a derivative of interest rates. If it costs you a fortune to "fund" the RUB, then the converse is that it pays you a fortune to lend RUB to the market. If it pays you handsomely simply to lend short-term RUB to the market, there is no reason to buy long term bonds, whose price must "compete" with the front end of the yield curve. In short: high short end rates will deter purchasing of any instrument with a (significantly) lower yield in the long end of the yield curve. If we were to get the above mentioned RUB squeeze to anything like 100% or higher, imagine how silly it would be to buy a long end bond at 15% (even though yes yes, long term it might still be a good investment - but that would require a long discussion about the implied path of future rates. Humans have proven themselves to be very short termist in markets and thus it is likely that long term bond prices would fall, dramatically in that scenario).
So to answer your question directly, bond investors still would be able to trade out of their positions (though in a disorderly market even that cannot be taken for granted), but at a very low price.
Source?
I fear forums whom I enjoyed becoming places of distrust, hatred and battle space against the other political 'side'. Where admins and moderators use their given powers to torture the unwanted. I have only recently seen an Isreali woman marrying an Iranian man on television loving each other. And don't think that all people agree to what the politicians have to say.
We are better. If all fails, I still believe that: “Chaos often breeds life, while order breeds habit.” – Henry Adams Regarding 'Chaos' - this seem like a good read: http://www.halexandria.org/dward165.htm
Leading countries co-operate to limit capital-flow to Russia and this albeit sounding implausible to me, has direct influence on the economic liquidity. Implausible because I don't know how it would be possible for countries and companies to co-operate on such a scale on a capital market, where most notably personal profit leads the market over political decisions. I would be much more curious on which companies initiated the financial war and how they orchestrated their strategies, than the actual outcome, from the PoV of a mathematically and technologically fascinated guy.
http://i.imgur.com/dnAWMT2.png
Thank you for reading so far.
Agriculture everywhere is a 1. low margin 2. labor intensive enterprise that requires 3. careful planning, 4. careful execution combined with 5. good stable investment climate and 6. property rights protection. In the relatively harsher climate of Russia the 3. and 4. becomes extremely important while Russians are among the worst people in the world when it comes to the 3. and 4. The 5. and 6. in Russia are among the worst due to its people's general contempt for entrepreneurship and due to dis-functionality and corruptedness of its government at all levels. While when it comes to oil/gas, piping it from the ground beats apple growing by the orders of magnitude wrt. the 1. and 2. :), and the 3. and 4. are partially solved by having foreign companies perform the complex drilling (and kicked out of the country after that :), and giving such high margins the 5. and 6. are solved in oil business by merging with the state which isn't an option for farmers. In short - having oil/gas is a big misfortune for Russia in the long run.
The problem is $60 per barrel oil. Putin can't undo that.
Also, let's not forget the last time merger of farming with the state happened in Russia. The problems with 3 and 4 wound up causing a significant number of deaths.
Simple. Heads of State get together and decide to what they want to happen. They have a whole range of levers to pull to manipulate markets.
> where most notably personal profit leads the market over political decisions
This is 100% wrong. I trade Forex daily and (a) political decisions drive the market and (b) we follow the market not drive it. Statements from say ECB, FOMC and reserve banks around the world etc all dictate what the currency markets will do.
It just doesn't seem like an insightful comment.
let me tell you a story. In 1996 a Dutch farmer came to Russia to farm potatoes. His plan seemed flawless - availability of a lot of cheap good for potatoes land plus his skills. He rented the land, planted and tended the potatoes on it. By the harvest time his potential harvest seemed very great. Almost miraculously great - like several times compare to the potential harvest from the nearby fields of the Russian individual farms and remnants of collective farms. And his potatoes were just better in size/shape and overall quality. Well, people from nearby villages and towns started to come to his fields en mass and harvest the potatoes for themselves. Including local police people coming and loading the potatoes into their official police SUVs :) A Russian national TV crew came and filmed a story about it right during daytime :) I'd say that was a Russian specific "force major" the farmer failed to plan for :)
Tl;Dr: Simply put, I just felt powerless over the suspicion driven hunt for people who might imply that they belong to a party, a side an ideology, a religion, or whatever is the 'currently trending enemy' of the day. Thus I wanted to reflect my feelings on that, because it's something that's not said often enough.
--- For those who still can't put me into drawer: I don't belong to a religion, don't choose a political party or take any active position in current or past political movements.
I think it was a depressive moment, one where I realized that the war is not only out there and far from where I live, but here and now. That it affects all of us. And is most frustratingly causing a split in once finely cooperating individuals and an ersatz valve for undirected agony on the other side. I've read comments from people in different forums who attack each other for tangential comments. (I mostly lurk around and only enjoy reading interesting or insightful comments)
The increasingly restricting laws that take the freedom we took for granted is a side-effect of our wars in foreign countries, but it's also causing a heat up of anti-surveillance protesters who'd like to reduce the symptoms of the war that targets them.
I couldn't voice otherwise it may not be one of my most insightful comments. Maybe it was an neede. I'm sorry that it doesn't mean nothing for viraptor or byEngineer. That's all.
