Russia has raised interest rates 1.5% after the state invaded Ukraine’s Crimea region, which is seen to be pro-Russian. This rate hike and the tension around war has taken the Russian stock market down around 9%, with the RTS Index at 1143, down 124 points.
The ruble, too, has fallen about 1.5%, and is at record lows of 36.35 rubles to a dollar.
Will this affect India? If it escalates into a world war kind of situation, it will. The invasion of Crimea isn’t that big a deal by itself, but everyone is concerned about moral hazard – if you let this slide, what about all those other countries that believe they can invade territories they want to control? If there is a coordinated reply, this may result in a larger war and India will have to take sides. There are no good choices – just a bad choice and a worse choice.
The issue is also about gas supply to Europe. Ukraine is an important middle stage but gets supplies from Russia. And Ukraine is close to bankruptcy, and has a political hole after a coup recently.
I don’t see this as a big problem yet because:
- Crude is up just 1%. Should have been up more if there was a fear of global war.
- Gold is up only 1%. (again, fear of capital flight)
- There’s no real opposition – a weak statement by the US shows they might not interfere just yet.
But the biggest problems come when you least expect them; so this could easily balloon into something you just didn’t wish for, or imagine. Let’s hope it gets defused. Meanwhile, we have enough on our own plate to take care of.