China is partnering again with Russia, this time, as a good neighbor as the Siberian giant suffers under sanctions, falling oil prices, rising inflation and the depreciating currency. Central Bank Of Russia hiked the interest rate so above everything the credit flow is also expected to freeze at the moment. Premier Li Keying announced the measures at Dec. 15 gathering in Astana, Kazakhstan. He was referring to all the nations present it is clear Russia would be the main benefactor.
This way China is proving to be another global force in lieu of United States which during the last century consistently supported other economies of interest with their financial power and leadership. Xi Jinping, the Chinese president is also aware of this fact calling for more Chinese diplomacy and influence in the world. China already provided boost by signing a 30year, 400 billion deal with Russia for buying gas. Now, only thing that misses a realization of such support from China is Putin simply asking for help.
This might support Ruble, the national currency of Russia which saw its value fall significantly in the last two months. Ruble depreciated 32 percent and another 2.3 percent last week, following CBR surprise move of raising the interest rates. Situation in Russia is additionally constrained by the Ukrainian crisis that caused Russia being expelled form the former group of 8. Russia could ask for IMF aid but as the G7 nations hold the majority stake it would mean that Putin is essentially putting himself in the mercy of the Washington institutions, a role he was never comfortable with.
China on the other hand has huge FX reserves it could use to set up FX swaps and supply Russia with foreign currency, thereby easing the crunch and supporting Ruble. FX traders should watch this option as they try to prognoses the next direction RUBUSD might take. China’s reserves are at $3.89 trillion in the Q3. Russia had $373.7 billion at the end of last month, according to data of Central Bank.