AUDIE CORNISH, HOST:
As we've been reporting, the Russian ruble is sinking along with the price of oil. The currency has plummeted nearly 25 percent against the dollar over the last four trading days, and over the past year it's down more than 50 percent. Today the Russian Central Bank took action. It boosted its benchmark interest rate to 17 percent to stem the tide.
As NPR's John Ydstie reports, the ruble's collapse will make it much more difficult for Vladimir Putin to ignore Western sanctions.
JOHN YDSTIE, BYLINE: The Russian Central Bank raised its key interest rate from 10.5 percent to 17 percent, but that didn't seem to help much. The ruble fell even further after the rate hike. It finally recovered a bit, but Anders Aslund, an economist and Russian expert, says the situation hasn't stabilized. He says nobody wants to own rubles now because the Russian economy is in a terrible state.
ANDERS ASLUND: Nobody wants to put money into Russia and that means that there is a one-way street now for money out of Russia. And the Central Bank can't really change that.
YDSTIE: International companies, Russian companies, investors and individual Russians are selling rubles for dollars and euros to avoid further losses. Aslund, who's a fellow at the Peterson Institute for International Economics, says Russian companies who've borrowed from Western banks are especially panicked because they need to pay off debts denominated in euros and dollars.
ASLUND: And therefore they are paying off these debts as fast as they can, but of course many of them will be caught in a trap and go bankrupt.
YDSTIE: A near 50 percent fall in the price of oil since June is a big reason for Russia's economic mess. It's Central Bank warned this week that with the global oil price at $60 a barrel - where it closed today - the Russian economy would end up in a deep recession, contracting by 4.5 percent next year. Oil accounts for two-thirds of Russia's exports and it supplies about half the government's revenue. Aslund also says the sanctions put on Russia in July for its military action in Crimea and Ukraine are hurting the country's economy very significantly.
ASLUND: Only now in December, the financial markets had started realizing how severe these financial sanctions really are.
YDSTIE: The only reasonable strategy to stabilize the Russian economy, says Aslund, is for Russian President Vladimir Putin to get out from under the sanctions imposed by the U.S. and its allies.
ASLUND: And in order to do so, he needs to satisfy the United States and the European Union by withdrawing Russian troops from Eastern Ukraine. There's no other good solution for Mr. Putin.
YDSTIE: The White House reiterated that position today and the president's top economist also said the ruble's big decline would have very little impact on the U.S.
Economist Blu Putnam agrees.
BLU PUTNAM: We won't even know the ruble collapsed.
YDSTIE: Putnam is managing director and chief economist at the CME Group. It operates options and futures exchanges that deal in oil, foreign currencies and many other products.
PUTNAM: You'll see some stories about company A or company B, but the impact on the economy? You're not going to find it.
YDSTIE: That's because U.S. exports to Russia account for less than one-tenth of 1 percent of the U.S. economy. Putnam says the ruble's decline won't affect the deliberations of Federal Reserve officials, who are meeting today and tomorrow to discuss interest rates. Russia is a significant market for some European countries, but they've already curtailed trade with Russia because of the sanctions.
John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
