Ruble Falls to Lowest in 3 Years Against Dollar on Devaluation

By William Mauldin

Dec. 22 (Bloomberg) -- The ruble fell to the lowest in almost three years against the dollar as Russia devalued the currency amid tumbling oil prices.

The ruble weakened as much as 0.7 percent to 28.3557 versus the dollar, the lowest level since January 2006, and was at 28.3128 at 11:50 a.m. in Moscow. Bank Rossii 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.

“It’s because of the oil price,” said Mikhail Galkin, head of fixed income and credit research at MDM Bank in Moscow.

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 1.5 percent to 39.7799 against the euro. weakened 1 percent to 33.4544 against the basket, made up of about 55 percent dollars and the rest euros and is used to protect Russian exporters from fluctuations in the ruble.

Recession Looms

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, rose 1.4 percent to $39.82 a barrel today, 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. That was less than the $4 billion decline expected by economists surveyed by Bloomberg. The stockpile reached a record $598.1 billion in the first week of August.

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.

Oil Price

Crude oil for February delivery gained as much as $1.08, or 2.6 percent, to $43.44 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.

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