The international crisis dealt a severe blow to the Russian economy. The lower oil prices and reversal of international capital flows to emerging markets hit the country hard because the shocks struck just as the economy was on a steep upturn and Russia’s dependence on oil made it particularly vulnerable.
As a result, economic activity fell precipitously. Faced with this challenging turn of events, the government mounted an economic policy response that was swift and unprecedented in its scale and contents. The banking pressures were addressed through large-scale liquidity injections and a rescue of problem banks, while fiscal policy became expansionary. At first, the Central Bank allowed gradual exchange-rate depreciation into early 2009, drawing on its foreign reserves to moderate the pace. This allowed banks and corporations to bolster their foreign exchange positions and brought the ruble in line with the new fundamentals implied by lower oil prices.
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