Putin Vows to Avoid ‘Sharp’ Swings as Ruble Falls to 3-Year Low

By William Mauldin and Emma O’Brien

Dec. 4 (Bloomberg) -- Prime Minister Vladimir Putin said Russia will avoid “sharp jumps” in the ruble as it fell to the lowest level in almost three years against the dollar.

The ruble, which the central bank manages against a basket of dollars and euros, weakened as much as 0.6 percent to 28.0708 per dollar, the lowest since March 2006, as the U.S. currency rose against the euro. It was at 27.9869 by 4:09 p.m. in Moscow, taking its decline since Aug. 1 to 16 percent.

“We will not allow sharp jumps in the economy and in the exchange rate of the national currency,” Putin said in televised comments in Moscow today. “We will carefully use our currency reserves and other government funds, and if we carry out a balanced, considered and responsible economic policy, this money will be enough for us.”

Putin and President Dmitry Medvedev are struggling to contain Russia’s worst financial crisis since the government’s default on its debt a decade ago as the price of Urals crude, its biggest export, trades at $41.48 a barrel, below the $70 a barrel needed to balance the 2009 budget. Putin said the government may buy stakes in key companies on a “large scale” after shares plunged 70 percent this year.

The Micex gained as much as 2.5 percent today before slipping to 566.42, 0.1 percent down from the previous close. The dollar-denominated RTS Index climbed 0.8 percent.

Reserves

Russia’s international reserves, the third-largest worldwide, unexpectedly rose last week for the first time in two months as the euro strengthened and banks brought more dollars into the country to make end-of-month tax payments.

The reserves have fallen 24 percent since reaching a peak of $598.1 billion in August as the central bank sold foreign currencies to prop up the ruble.

The dollar gained against the euro after the European Central Bank cut interest rates by 75 basis points, more than expected, reducing the appeal of assets denominated in the European currency.

While the ruble declined against the dollar, it appreciated 0.4 percent to 35.3450 per euro. Those movements left it little changed at 31.3212 against the basket that the central bank uses to control its fluctuations.

Investors have withdrawn about $190 billion from Russia since the start of August, according to BNP Paribas SA.

A weaker ruble may benefit Russian oil producers as they sell crude on a dollar basis and pay most expenses in rubles. OAO Rosneft, Russia’s biggest oil producer, is cutting finance costs by paying back ruble debt with a cheaper currency.

‘Right Decision’

“Most recently we were borrowing in rubles, and the interest rates were a bit higher, but in light of what the ruble has done it’s actually worked out to be the right decision in terms of our dollar costs,” said Peter O’Brien, vice president for finance and investments, in an interview in London.

Currency fluctuations add to risks faced by Russian companies next year, JPMorgan Chase & Co. said in a report today. The New York bank reiterated its “underweight” recommendation on Russian equities for 2009.

Russia’s benchmark 30-year government bond fell for a fourth day, pushing its yield up 14 basis points to 11.151 percent. The Micex Corporate Bond Index fell 0.8 percent to 82.25, the lowest in a week.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net; Emma O’Brien in Moscow at eobrien6@bloomberg.net