Even Without Sanctions, Russia's Economy Is Looking Sicklier Than Ever

Signs of Russia’s growing economic distress became even clearer today, as the central bank unexpectedly raised interest rates for the second time since March, while Standard & Poor’s cut the country’s debt rating to one notch above junk.  In lifting the benchmark borrowing rate from 7 percent to 7.5 percent, the bank said it was acting to cool inflation that’s now running above 7 percent. But, says economist Tim Ash of Standard Bank in London, “it has nothing to do with inflation. It’s all about signaling that the central bank is shoring up its defenses” to strengthen the ruble and stem the flight of capital from the country. With Russian companies and consumers facing higher borrowing costs, the rate hike will depress an economy that’s already in danger of tipping into recession. And continuing political uncertainty over Ukraine means that foreign companies “will not invest in Russia’s real economy, they’ll just stall their investment,” Ash says. Moreover, “inflation is likely to remain relatively high,” above 7 percent this year, emerging-markets economist Liza Ermolenko of Capital Economics in London wrote in a note to clients.

http://www.businessweek.com/articles/2014-04-25/even-without-sanctions-russias-economy-is-looking-sicklier-than-ever#r=nav-fs