As 2008 began,Russia was flexing it’s economic muscle and being touted as the next big super earner from surging Oil Prices to US $ 145/barrel…It had already began licking it’s lips in eager and exciting anticipation of surging Revenues from Oil Exports
Within Months the Fairy tale Speculative Bubble rise in Oil Prices burst and Oil is now under US $ 50
This has taken a toll on Russia’s Currency…the Rouble…..For a straight ninth day it has depreciated against the Euro and it is now quoted at a four year low of 37.55 per euro
Russia’s Central Bank has already devalued the Rouble twice this week…It has already depleted it’s Fx Reserves by a huge US $ 161 billion or 27% to counter the 16% depreciation since August this year of the Rouble against the US Dollar as a consequence of Oil Prices crashing 69% from Highs
I vividly recollect 1991/92 and the open float of the Rouble and it’s consequent crash against the US Dollar by a factor of over 20
In fact a leading Indian Investment Magazine had carried a blatant Editorial in it’s July 1992 Issue that just said “BUY HEAVILY”…not because of their concluding that markets had bottomed out after correcting on the Harshad Mehta BR Scam exposed in April 1992 (They had not),but on the basis of the fact that they strongly opined that the Russian Rouble was to be floated and would crash significantly… Therefore our Russian Defence Debt of around Rs 50000 crs would be restated to probably just Rs 50 Crs !
This was poppycock !…the Bilateral Agreement between India and Russia clearly stated that the Indian Rupee to Rouble Exchange Rate would be fixed under all circumstances…If I remember correctly it was One Rouble to Rs 37…So there was no question of any restatement of Liabilities downwards
Stock Markets,reeling under the Harshad Scam, were looking at straws to revive and took this Wrong Editorial as one and there was renewed buying…even some of my clients at the time went against our advice…..1992 closed much lower.
Exchange Rates can play havoc…Currency Rate Volatility exposes risks that need to be proactively managed by hedging.
India too has been hit in recent months by a 25% sudden depreciation in the Indian Rupee against the US Dollar…It was seen strong at US $/Rs 39 and expected to get stronger….but it retraced fast to US $/Rs 49…Normally Exporters would have loved and welcome and celebrated this…but they had already forward booked at US $ 42…Importers expecting more Rupee Strength at Rs US $/35 had not forward booked and have now got to pay heavily more for a further weakened rupee…The Value added Export Diamond Sector has been greatly affected…check out how in my earlier Blog on this Industry