Ruble Falls to 3-Year Low Versus the Dollar on Devaluation, Oil

By William Mauldin

Dec. 22 (Bloomberg) -- The ruble fell to the lowest in almost three years against the dollar as Russia devalued the currency against its dollar-euro basket and tumbling oil prices battered the economy.

The ruble weakened as much as 1 percent to 28.4567 versus the dollar, the lowest level since January 2006, and was at 28.3525 at 3:15 p.m. in Moscow. Bank Rossii today allowed the ruble to decline for the second time in three working days and the ninth time since Nov. 11, according to a central bank official who declined to be identified. The currency fell 17 percent against the dollar since the beginning of August.

“The central bank has a plan of devaluation before the end of the year, and they’re trying to fit it in,” said Denis Korshilov, head of foreign exchange at Citigroup Inc. in Moscow who expects the central bank to devalue the ruble by another 1 percent to 2 percent in the near term. “We still see some weakness in oil, and that’s definitely part of their operations.”

Russia’s Urals blend of crude traded at $39.82 a barrel today, or just 4 percent above its four-year low of $38.29 on Dec. 5. Russian oligarchs are vying for $78 billion of Kremlin loans to survive the credit squeeze as Russian companies prepare to meeting about $110 billion of foreign obligations due next year, according to the central bank, double the total owed in Brazil, India and China.

Funds Withdraw

An internationally condemned war with Georgia, a plunge in oil prices and the worst global financial crisis since the Great Depression caused investors to withdraw $211 billion from Russia since August, according to BNP Paribas SA. Bank Rossii drained $162.7 billion, or 27 percent, from its foreign-currency reserves, the world’s third-largest, to prevent a sudden devaluation from causing a repeat of the bank runs of 1998, when the ruble tumbled 71 percent against the dollar.

The ruble fell 1.3 percent to 39.7050 against the euro. It weakened 1 percent to 33.4662 against the basket, made up of about 55 percent dollars and the rest euros and used to protect Russian exporters from foreign-exchange fluctuations.

Barclays 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 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 long-term debt rating last week for the first time in nine years on concern the country is wasting reserves defending the currency.

Russia’s currency reserves fell $1.6 billion to $435.4 billion in the week to Dec. 12, compared with a drop of $17.9 billion the previous week, the central bank said today.

Depreciation Forecasts

Banks including Goldman Sachs Group Inc. and Citigroup Inc. are forecasting the ruble will lose as much as 25 percent over the next year as sliding oil erodes Russia’s $91.2 billion current-account surplus. Troika Dialog, the nation’s oldest investment bank, is calling for a one-time depreciation of as much as 20 percent versus the basket in late January after the holiday period. Commerzbank AG expects the currency to be gradually devalued to 35 versus the basket.

Crude oil for February delivery rose 0.6 percent to $42.60 a barrel in after-hours electronic trading on the New York Mercantile Exchange.

After averaging 7 percent growth in the eight years to 2007, Russia’s economy may shrink as the reduction in oil revenues erodes the country’s $91.2 billion current-account surplus. Deputy Economy Minister Andrei Klepach was the first government official to suggest the economy is headed for a recession in remarks to reporters last week.

Russia is aiming to free float the ruble by 2011.

Russia’s benchmark 30-year Eurobond was little changed today, yielding 10.01 percent.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.