Russian Public Debt Downgrade
The Russian economy is heading into a deep recession: the projected average growth over the next three years has been estimated at 0.5%. The years of the Russian oil boom are fading fast and tensions continue to rise with the West, in light of Russian pugilistic actions in the Ukraine. Standard & Poor's has judged the Russian government's prospects for servicing the debt as continuing to narrow, with few options left for the central bank of Russia to employ: available mechanisms are scaffolding for the teetering Russian banking sector or propping up the ruble. Following the credit downgrade, the ruble fell 7% in after-hour trading to reach a new low of 68 rubles to the dollar.
In what appears to be a terrible and perfect storm, the Russian economic growth prospects are diminished, the flexibility of the monetary policy of the Russian Federation has weakened, and Russian banks and corporations with foreign currency debt service requirements face the prospect of not having a foreign currency revenue stream. Bond funds that may only own investment-grade securities will be forced to sell Russian debt.
A more jaundiced eye shows that the downgrade of Russia's credit rating was just a single...
The timing of the quantitative easing is therefore essential. The first round of QE in 2009 essentially served the purpose of stabilizing the economy; the second round is intended to sustain the ongoing economic recovery by providing sufficient capital in the system that the positive momentum generated in the economy will eventually become a feedback loop of its own that results in the restoration of GDP growth and a reduction
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