Ruble Heads for Biggest Monthly Drop in 9 Years Against Dollar

By Emma O'Brien

Aug. 29 (Bloomberg) -- The ruble is bound for its biggest monthly decline in more than nine years against the dollar after the Georgian war and subsequent tensions with the West spurred investors to reduce holdings of Russian assets.

The managed currency is poised to lose 4.8 percent to the dollar in August, the biggest drop since March 1999, and is set for its worst month against the dollar-euro basket since the mechanism was introduced in 2005. Investors withdrew as much as $25 billion from Russia, according to BNP Paribas SA, as the five-day conflict with neighboring Georgia drew condemnation from the U.S. and threats of sanctions from the European Union.

The ruble was at 24.5785 per dollar by 10:44 a.m. in Moscow, from 24.6402 yesterday, headed for a decline of 0.8 percent this week. It was little changed at 36.2332 per euro, from 36.2391, set for a 0.5 percent loss since Aug. 22.

Those movements left Russia's currency 0.1 percent lower at 29.8250 to the basket and headed for a 1.6 percent drop in August. Bank Rossii, Russia's central bank, confines the ruble to a trading band versus the basket so as to limit the impact of fluctuations on local exports. The basket rate is calculated by multiplying the rate to the dollar by 0.55, and the euro rate by 0.45, then adding the two together.

Russian Prime Minister Vladimir Putin in a CNN interview yesterday accused the U.S. of orchestrating Georgia's attack on Russian troops and citizens in the breakaway region of South Ossetia. Russia is seeking support from other countries for its decision to recognize the independence of South Ossetia and another Georgian separatist region, Abkhazia.

To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net