Russia Relaxes Defense of Ruble as Oil Drop Spurs Depreciation

By Emma O’Brien

Nov. 24 (Bloomberg) -- Russia’s central bank relaxed its defense of the ruble, allowing it to depreciate after draining nearly a quarter of the nation’s foreign reserves in less than four months in an attempt to stem the currency’s decline.

The ruble fell as much as 0.8 percent against the dollar and 1.2 percent versus the euro as crude oil, Russia’s main export, traded at about $45 a barrel, 68 percent below the July record. Bank Rossii widened the band against which it manages the ruble by 30 kopeks (1 U.S. cent), or 1 percent, at each end, according to two bank officials who declined to be identified.

“The central bank is tweaking the pressure cooker to let a little steam out,” said Chris Weafer, chief strategist in Moscow at UralSib Financial Corp.

Russia’s international reserves, the third-biggest after China’s and Japan’s, have dropped by $144.6 billion as the central bank struggles to contain its worst financial crisis since 1998. The ruble has slumped 15 percent against the dollar since Aug. 1.

The currency fell to 27.6998 per dollar by 12:17 p.m. in Moscow, from 27.5090 last week. Against the euro, it weakened to 34.9409, from 34.627.

The declines left the ruble 0.8 percent lower against the central bank’s dollar-euro basket, falling through the 30.70 level considered the weak end of the range. The basket is made up of about 55 percent dollars and the rest euros.

The ruble will weaken 13 percent by the end of 2009 as declining oil prices erode the $91.2 billion current-account surplus, according to the median estimate of 16 economists surveyed by Bloomberg last week. Urals crude, Russia’s main export blend, slumped 69 percent from a July record to $45.41 a barrel, below the $70 average that Finance Minister Alexei Kudrin said is needed to balance the budget next year.

Managing Swings

“They’re not sure about the oil forecasts and so they prefer to see the ruble weaker in the current circumstances,” said Evgeniy Nadorshin, a senior economist in Moscow at Trust Investment Bank.

Bank Rossii manages the ruble against the basket to limit the effect of currency swings on the competitiveness of Russian exports. It last expanded the trading band on Nov. 11, also by 30 kopeks. The weakest end of the band is now 31 versus the basket, according to Martin Blum, head of emerging-markets economics and currency strategy in Vienna at UralSib Financial Corp.

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