Ruble Devalued to Six-Year Low as Gas Dispute Deters Investors

By Emma O’Brien

Jan. 14 (Bloomberg) -- The ruble fell to lowest in six years against the dollar after the central bank devalued the currency for the third time in four days and the government’s dispute with Ukraine over gas shipments remained unresolved.

The currency fell to as low as 31.7560 per dollar today, the weakest since February 2003. The ruble has dropped 26 percent against the dollar since August. Bank Rossii, which manages the ruble against a target dollar-euro basket to protect exporters from fluctuations, expanded the trading range today, a bank official said, without providing details.

Russia’s natural-gas shipments through Ukraine were stopped for an eighth day as both sides blamed each other for the failure to reopen pipelines and restore supplies to the European Union. Investors withdrew a record $129.9 billion from Russia last year because of slumping oil prices and an internationally condemned war with neighboring Georgia, according to central bank data.

“We won’t see interest in Russian assets resume sooner because of this conflict,” said Stanislav Ponomarenko, chief economist in Moscow at ING Bank NV. “It may delay any improvements in capital inflows.”

The ruble has slumped 24 percent against the basket from a record high of 29.2843 on Aug. 4, four days before Russian tanks rolled over the border into Georgia. The currency has weakened 19 percent against the mechanism since Nov. 11, when the central bank began its current round of devaluations.

The country’s foreign-currency reserves, the world’s third- largest, have been reduced by more than a quarter since August as the central bank attempts to control the decline. Prime Minister Vladimir Putin pledged last month to prevent a “sharp” devaluation of the currency.

More Devaluations

The currency may be devalued by a further 4 percent against the basket this month as the gas dispute continues to deter foreign investors, Ponomarenko said.

OAO Gazprom, Russia’s gas exporter, said it would try again to ship gas through Ukrainian pipes today, after cutting off supplies Jan. 7 in a move that disrupted flows to at least 20 European countries. Russia claims its western neighbor closed down its pipes and was diverting gas meant for Europe. Ukraine denies the charges.

This is a “ridiculous situation that doesn’t help the investment case for Russia,” said James Fenkner, managing partner at Moscow’s Red Star Asset Management, whose $100 million Russian stock portfolio is down about 40 percent since the start of the financial crisis in August. “People don’t want to take risks into questionable emerging markets with political issues.”

The central bank has let the ruble weaken against the basket three times since official trading resumed Jan. 11 as Urals crude oil, Russia’s chief export blend, trades 36 percent below the $70 average price required to balance the country’s budget.

Stepping Up Pace

Bank Rossii allowed the ruble to fall about 1 percent five times from Nov. 11, upping the pace to as much as 1.5 percent per devaluation from Dec. 17, after which it allowed 10 declines.

“The devaluation is happening much faster than in the past month,” Ponomarenko said. “That’s possibly a signal that they don’t want this to be a long process. The central bank is adjusting the ruble to help decrease the amount of capital outflows.”

The ruble dropped 1.4 percent to 41.8516 per euro by 12:33 p.m. in Moscow, leaving it 1.3 percent weaker at 36.2634 against the basket, which is made up of about 55 percent dollars and the rest euros. It was 1.2 percent lower at 31.6843 per dollar.

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