Russia has experience an economic contraction over the past few years as Western sanctions imposed after the annexation of Crimea and the collapse in the price of crude oil have taken its toll. The Russian federal budget has also suffered due to the impact of these external shocks.
Although the price of crude oil has rebounded, and along with it Russian manufacturing, there is still projected to be a deficit this year. Luckily, oil, which is still the life blood of Russian income, is sold in dollars. This provides an opportunity to fill the budget deficit by devaluing the currency. The severe collapse in the value of the ruble over the last few years has not been all bad for the Kremlin. It has helped fill the federal coffers with rubles.
It seems the Russian Central Bank may again be looking at devaluation to close the projected budget deficit of 1.5% in 2017, according to a report in the Russian newspaper Kommersant. The anticipated move could be about 10% to the downside. The Kremlin denies these reports.
However, with oil stable in the mid $50 range, Moscow may not have a choice. They need the price of crude to increase about $20 to come out even.
