Dmitry Medvedev fears a 'deep recession' for Russia following oil price crash

Russian PM: "A number of countries are effectively hampering the development of our economy"

Russian Prime Minister Dmitry Medvedev pictured at the Ministry of Finance in Moscow (ALEXANDER ASTAFIEV/AFP/Getty Images)

Russia could face a "deep recession" if the government scraps its spending plans, Prime Minister Dmitry Medvedev warned on Tuesday.

The cratering cost of oil, the foundation of the Russian economy, as well as western sanctions, has driven the ruble to massively depreciate in value this year leaving the country on the verge of financial crisis.

Speaking at a meeting of his party, Medvedev said the Russia will not retreat from its strategic aims nor rein in its social spending — otherwise it could plunge into a "deep recession".

Russia is expected to fall into recession in 2015 irrespective of its fiscal policy, but Putin and his PM are trying to limit the damage.

In response to the falling ruble, which has lost half its value this year, the Russian central bank increased its key interest rate to a monumental 17 per cent. The currency may benefit, but local businesses and the Russian people will likely be impacted.

Medvedev said the rate hike was a temporary measure and that it will be lowered as soon as the ruble stabilizes. Further signs emerged Tuesday that the ruble is under less stress in the wake of steadier oil prices. It was up 2 per cent at 54 against the dollar.

The oil price, however, may again respond to today's announcement from Saudi Arabia's oil minister.

Ali al-Naimi told the Middle East Economic Survey that Opec [Organization of Petroleum Exporting Countries] will keep oil production steady no matter what: "It is not in the interest of Opec producers to cut their production, whatever the price is.

"Whether it goes down to $20, $40, $50, $60, it is irrelevant."

The PM also sought to blame others for part of Russia's current economic difficulties.

He said the Russian economy is in a worse place now than in the 2008 crisis because "a number of countries are effectively hampering the development of our economy".

The U.S. and its allies, primarily in Europe, have slapped a series of sanctions on Russia over its involvement in Ukraine and the annexation of Crimea. While some of the sanctions were largely symbolic like travel bans, other restrictions have hit the economy hard, such as closing Western debt markets for major state-owned companies.

Additional reporting by AP