Russia is pulling out all the stops to jump-start its flagging economy and keep its exchange traded fund (ETF) on its upwardly mobile path. One such measure is allowing a bigger budget deficit next year. Could it work?
A bigger budget could allow government to spend more in order to kick up demand, invest in the largest companies in the country and lend more to banks. Lidia Kelly and Andrew Langley for The Wall Street Journal report that the ministry sees the Russian economy potentially expanding 1% next year, a reversal from the 8.5% decline in GDP expected this year.
Analysts and economists are hoping that the measures will prevent any banking or lending crises from taking over. Russia has lowered borrowing costs in hopes of stemming a tide of defaults.
After all, the Russian banking sector is looking dire and the aforementioned moves may not be enough to save the 250 troubled banks from failing. Rana Foroohar for Newsweek reports that bad debts made up 12% of loans made this year, while some bankers say it’s closer to 20%.
The Russian ruble lost 1.3% against the U.S. dollar today after speculation that there could be a devaluation of the currency. The central bank also cut the main interest rate, hurting the ruble further, reports the Associated Press. The rate cut was Russia’s fifth in four months. A Russian banker said that Russia would have to devalue the ruble by 30% to 40% in order to right the economy again.
- Market Vectors Russia (RSX): up 81% year-to-date
- CurrencyShares Russian Ruble Trust (XRU): down 3% in the last month
For more stories about Russia, visit our Russia category.
Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.