The Russian financial markets remained volatile after “Black Tuesday”, when the turmoil spilled across the world, with several emerging markets, including Turkey, feeling the heat.

Here are five charts explaining what is happening in Russia and what to expect next.

1) The rates rise that did not stop the rout

On Monday night the Bank of Russia lifted interest rates to 17 per cent, up from 10.5 per cent, in an attempt to stop a steep depreciation of the rouble. But investors took it as a sign of panic, with the sell-off continuing in the early hours of Tuesday. The Russian currency broke the barrier of 80 against the dollar before paring some of the losses.

It is hovering around 68 against the greenback, still 4 per cent below where it started the day.

2) It’s the oil price, stupid

Those seeking an explanation for the rouble sell-off should look no further than the price of crude oil. ICE January Brent — the international benchmark — fell below $60 a barrel on Tuesday, a five and a half year low and nearly half the $115 a barrel price of six months ago. Oil and gas account for roughly three-quarters of Russia’s exports and more than half the government’s budget revenue.

Unless prices recover quickly — and there is no sign that they will — oil will continue to put pressure on the currency.

3) Trouble ahead for inflation . . .

Inflation had already hit 9.1 per cent in November. But with the steep depreciation of the rouble feeding into higher import costs, economists fear prices could rise at a double-digit pace early in the new year. This would squeeze consumers’ income, weighing on consumption. It would also make the life of the central bank much harder: The Bank of Russia has a 4 per cent inflation target in the medium term, but this will be impossible to meet unless the currency is stabilised.

4) . . . and for the economy.

The Russian economy has stagnated this year under the weight of the weakening rouble and western economic sanctions arising from the Ukraine crisis. But even a zero rate of growth would be hard to achieve next year were crude to remain where it is. In a statement this week, the Russian central bank said it expected the economy to contract by about 4.5 per cent next year and 0.9 per cent in 2016.

The Bank of Russia predicts the economy will adapt and rebound strongly in 2017, growing about 5.6 per cent.

5) What next for the central bank?

The Bank of Russia has spent much of this year trying to prop up the rouble, with its foreign reserves declining to roughly $400bn from $499bn at the start of 2014 and $419bn at the end of November. In November, governor Elvira Nabiullina chose to fully float the currency while retaining the right to step in to prevent a crisis. The central bank has since resumed its interventions but on a limited scale, preferring to use interest rates as its main line of defence. The failure of Monday night’s rise to stop the rout may lead Moscow to think about a less orthodox response, however, with some economists already talking of capital controls as a possible option.

Twitter: @FerdiGiugliano

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