By Emma O’Brien
Jan. 19 (Bloomberg) -- The ruble fell below the weakest level seen in the 1998 Russian crisis after the central bank devalued for the sixth time in seven days to protect reserves.
The currency slid to as little as 33.1080 per dollar today, the lowest since early 1998, before the government defaulted on $40 billion of debt. The ruble has lost 7.3 percent since official trading resumed this year, extending the decline to 29 percent since August.
Prime Minister Vladimir Putin pledged last month to use the nation’s foreign-exchange reserves to avoid “sharp” currency swings, after a 71 percent decline against the dollar in 1998 caused investors to flee and savers to pull bank deposits. Investors have withdrawn $245 billion from Russia since August as a 63 percent drop in oil, Russia’s war with Georgia and the disruption to gas exports exacerbated the effect of the global financial crisis, according to BNP Paribas SA data.
“Fear of another devaluation means nobody wants to buy rubles right now,” said Lars Rasmussen, an emerging markets analyst in Copenhagen at Danske Bank A/S, which rates itself among the five biggest traders of ruble in the world through Finnish subsidiary Sampo Bank Plc. “The ruble has begun to look more and more overvalued because of the fall in the oil price.”
Russia’s reserves, the world’s third-largest, have dropped by $171.6 billion to $426.5 billion since August, as policy makers sold foreign currency.
The ruble weakened 1.3 percent to 37.8013 against the dollar-euro basket by 1:58 p.m. in Moscow, extending this year’s drop to 6.8 percent.
Danske Bank lowered its forecast for the ruble today, seeing a further 15 percent depreciation versus the basket to 44.45 in three months, down from a prediction of 38.6 in December.
Ruble to Stabilize
Mark Mobius said he expects Russia’s currency will begin to stabilize and the central bank may slow devaluations as the ruble approaches fair value.
“It’s not as overvalued as it was,” Mobius, who manages more than $24 billion in emerging-market assets as executive chairman at Templeton Asset Management Ltd., said in an interview today. “I know some commentators think further devaluations can be expected, but I’m not too sure about that.”
Non-deliverable forwards predict an 11 percent decline in the ruble to 37.04 per dollar in the next three months. NDFs fix a currency at a particular level at a future date and are used by companies to protect against foreign-exchange fluctuations.
Bank Rossii, which manages the currency against a basket of about 55 percent dollars and the rest euros, widened the ruble’s target range today, a bank official said. The currency has fallen 29 percent versus the basket since Aug. 1 and is now able to decline about 22 percent from a target rate, from about 3.6 percent on Nov. 11, the start of the current round of devaluations.
Short Positions
The quickened pace of devaluations is encouraging investors to place so-called short positions on the ruble-basket rate, said Rasmussen of Danske Bank. A short is a wager a security is going to decline.
The strategy of shorting the ruble has now spread from the major banks to the smaller firms, said Peter Rosenstreich, chief market analyst at Geneva-based currency-trading firm ACM Advanced Currency Markets.
Economy Minister Elvira Nabiullina said the ruble will average 35.1 per dollar this year, 6 percent above its current price, Interfax reported today. Economic growth will probably shrink to 0.3 percent in 2009 as Urals crude averages $41 a barrel, she added, according to the Moscow-based newswire. The ruble fell to the low of the day after the comments were released.
Quickened Pace
The ruble dropped to 43.8880 per euro, the lowest since the common currency’s introduction in 1999, and is down 6 percent this year.
Urals crude, Russia’s main export blend, has declined 69 percent to $44.43 a barrel from a record in July, below the $70 a barrel needed to balance the budget this year. Policy makers devalued the ruble every trading day last week except for Jan. 13, letting it fall an average 1.7 percent a day versus the basket. That compares with the average two devaluations a week in November and December, at a mean rate of about 0.6 percent a day, according to Bloomberg data.
Russia is trying to avoid the one-day declines of as much as 27 percent in August 1998 that spurred people to withdraw their savings. Bank Rossii First Deputy Chairman Alexei Ulyukayev said last month the bank has a policy of “gradual” devaluation.
Dollar-ruble rates at currency kiosks around Russia are likely to surge through 33 per dollar today, said Alexei Moiseev, head of fixed-income research at Moscow investment bank Renaissance Capital.
‘Avoiding Panic’
“They would have been much better off with a large, one-off devaluation this time but their focus is on avoiding panic,” Moiseev said.
Bank Rossii has increased the pace of the depreciation to minimize the damage from speculators betting on the ruble’s decline, he said. The bank is aiming to complete the devaluation by the end of this month after letting the ruble drop to about 37 per dollar, said Moiseev, who used to work at the central bank.
“They’re doing it quicker to avoid the fallout from speculators,” he said. “They’ll keep up this pace until the end of the month and then stop, maybe not every day of the week though because that is too obvious.”
Expensive Cash
The ruble weakened 5.3 percent against the dollar and 9.8 percent versus the euro last week, the most since 1999. That compares with a record 71 percent slide in the week to Aug. 28, 1998, and a 42 percent slump the week after.
Russia saw a record capital flight of $129.9 billion last year as investors liquidated their positions and locals converted rubles into foreign currency. Outflows of capital from Russia may climb to $160 billion this year should the oil price remain below $40 a barrel, according to Renaissance.
The falling ruble is causing banks, companies and individuals to hoard foreign currency, said Evgeny Nadorshin, senior economist at Moscow’s Trust Investment Bank.
“All the attention of the people is focused on the forex market,” Nadorshin said. “Companies aren’t buying supplies, they’re investing their rubles in dollars instead because the play is too attractive.”
The cost of money is rising as supply tightens and will force policy makers to halt the ruble devaluation “soon,” Nadorshin said. Russia’s MosPrime rate, the average interest-rate banks charge to lend money to each other, rose to a two-month high of 12.5 percent today, according to the central bank.
Sliding Economy
The ruble will probably rise to near 40 against the basket before the central bank stops devaluing it some time around the end of January, he said.
Russia redenominated the ruble on Jan. 1, 1998, effectively replacing the currency by taking three zeros off the currency. The 1,000-ruble note became the 1-ruble note.
Declining oil revenue contributed to a 8.7 percent contraction in Russian industrial output in November, the most for 10 years. Wage arrears at Moscow-based companies tripled to 213 million rubles ($7 million) in December, according to Rossiiskaya Gazeta, the government’s newspaper of record. Unemployment rose to 6.6 percent last year.
To contact the reporter on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net
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