Ruble Suffers Biggest Weekly Plunge Against Euro Since 2000

By Emma O’Brien

Dec. 12 (Bloomberg) -- Russia’s ruble headed for its biggest weekly decline against the euro since 2000 after the central bank eased its defense of the currency for the fifth time in a month as foreign-exchange reserves fell.

The ruble dropped 3.3 percent this week to 37.0395 per euro and was 0.2 percent lower today as of 12:54 p.m. in Moscow.

Bank Rossii extended the amount the ruble can decline against its target to 7.7 percent yesterday, double the 3.7 percent allowed a month ago, after depleting the world’s biggest foreign-currency reserves by $161 billion since August supporting the currency. BNP Paribas SA says investors pulled about $211 billion out of Russia as the price of Urals crude, its biggest export, fell 64 percent to $43.37 a barrel, below the $70 average needed to balance the budget.

“They still need to devalue more from here,” said Jon Harrison, an emerging markets currency strategist in London at Dresdner Kleinwort, who forecasts a 25 percent drop in the ruble next year. “There is still concern about the depth of the slowdown and the collapse in oil prices.”

Urals crude, Russia’s main export blend, dropped 3.2 percent today to $43.37 a barrel on concern the U.S. Senate’s rejection of a bailout for automakers will deepen the global economic slump, sapping demand for oil, extending a 64 percent slump since August.

Russia is entering its first recession since 1998, Deputy Economy Minister Andrei Klepach said today. The world’s largest energy exporter may already have a current account deficit, says Evgeny Gavrilenkov, chief economist at Troika Dialog, Russia’s oldest investment bank.

Downgrades

Moody’s Investors Service cut Russia’s rating outlook today to “stable” from “positive,” citing the government’s “equivocal policy response” to the global financial crisis. Standard & Poor’s cut Russia’s long-term debt rating for the first time in nine years this week to the second-lowest investment-grade rating of BBB.

The central bank has allowed the ruble to decline 4.9 percent against its target basket of euros and dollars since Nov. 11. The currency has lost 8.1 percent versus the dollar in the fourth quarter.

The ruble was little changed against the dollar at 27.7090 today and traded at 31.9014 versus the central bank’s basket, the weakest end of the band that was widened by 30 kopeks, or 1 percent, yesterday. The basket is made up of about 55 percent dollars and the rest euros.

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