Ruble Devalued for Second Day, Falls to Record Low Versus Euro

By Emma O’Brien

Dec. 18 (Bloomberg) -- The ruble slid to a record low against the euro and weakened against the dollar as the central bank devalued the currency for a second day amid tumbling oil prices and reduced reserves.

Bank Rossii let the ruble decline 1.3 percent versus the basket of dollars and euros used to manage currency swings, a bank official who declined to be identified said by telephone. It’s the eighth depreciation since Nov. 11 and follows a 1.4 percent drop versus the basket yesterday. The currency has fallen 15 percent against the dollar this year.

An internationally condemned war with Georgia, a 70 percent plunge in oil prices and the worst global financial crisis since the Great Depression have caused investors to withdraw $211 billion from Russia since August, according to BNP Paribas SA. Bank Rossii drained $161 billion, or 27 percent, from its foreign-currency reserves, the world’s third-largest, to prevent a sudden devaluation causing a repeat of the bank runs of 1998, when the ruble tumbled 71 percent against the dollar.

“It’s better that they do this quicker rather than slower because everything is looking particularly weak in Russia with the oil price where it is,” said Eugene Belin, head of fixed income, currencies and commodities in Moscow at Citigroup Inc. “The sooner they’re finished with this devaluation process the better for the economy.”

Ruble Rates

The ruble weakened as much as 1.5 percent to 39.9339 per euro, its lowest level since Europe’s common currency was introduced in 1999. The Russian currency was at 39.8800 per euro by 12:12 p.m. in Moscow, and lost 1.2 percent to 27.5715 per dollar. It was at 33.1011 against the basket, which is made up of about 55 percent dollars and the rest euros and is used to protect Russian exporters from fluctuations in the currency.

The currency is about 10.5 percent below the central bank’s target exchange rate, compared with 9.3 percent yesterday and 3.7 percent on Nov. 11. The weakest end of the corridor that Bank Rossii is defending is “not clear yet,” said Mikhail Galkin, head of fixed-income and credit research in Moscow at MDM Bank. A central bank official who declined to be named confirmed the widening of the trading band today, saying it was a “technical decision.”

Barclay’s Capital says Russia’s economy will sink into a recession next year as the price of Urals crude, the country’s export oil blend, traded at $41.38 a barrel, below the $70 a barrel average needed to balance the budget in 2009. Industrial production shrank the most last month since the economic collapse 10 years ago. Standard & Poor’s cut Russia’s credit rating last week for the first time in nine years on concern the country is wasting reserves defending the currency.

Dwindling Reserves

Bank Rossii will release data on foreign-currency reserves today. The stockpile decreased by about $4 billion last week to $433 billion, according to the median estimate of six economists surveyed by Bloomberg News. It reached a record $598.1 billion in the first week of August.

Crude in New York slid as much as 2.2 percent to $39.19 a barrel, near a four-year low, amid concern the Organization of Petroleum Exporting Countries’s record production cut yesterday won’t be enough to boost prices that have slumped 72 percent from a July record.

Russia’s Micex stock index rose 0.4 percent to 644.71, after falling 0.4 percent yesterday.

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