By Emma O’Brien
Jan. 15 (Bloomberg) -- Russia’s ruble tumbled to a record low against the dollar after the central bank accelerated its devaluation of the currency in an effort to stem the drain on foreign-exchange reserves.
The currency dropped to as low as 32.4668 per dollar, the weakest since Russia redenominated the ruble at the start of 1998, before the government’s default in August that year. The trading band versus the dollar-euro basket was widened for the fourth time in five days, a Bank Rossii official said. The ruble has lost 27 percent against the dollar since August.
“Russian policy makers have realized they can’t fight this and that’s why we’re seeing this increase in the pace of devaluation,” said Peter Rosenstreich, chief market analyst at Geneva-based currency-trading firm ACM Advanced Currency Markets. “The staggered devaluation will continue as it’s the only way to relieve pressure on reserves depletion.”
Prime Minister Vladimir Putin pledged last month to avoid “sharp” swings in the ruble after slumps of as much as 27 percent in a day in 1998 fueled the financial crisis. The ruble led currency declines in Poland, Hungary and across eastern Europe as a ninth day of gas restrictions to industry exacerbated concern of a recession.
Russia’s energy-led economy is slowing after a 64 percent drop in the price of Urals crude, the country’s main export oil blend, since August to $43.47. Russia cut its average oil forecast for this year to $40 a barrel, from a previous $50, Vedomosti newspaper in Moscow reported, citing government officials. That’s below the $70 average the finance ministry says is needed to balance this year’s budget.
Gas Dispute
The central bank’s defense of the ruble drove foreign- currency reserves $11.7 billion lower to $426.5 billion in the 2 1/2 official trading days between Dec. 26 and Jan. 9, extending the depletion since August to 29 percent, according Bank Rossii data published today.
The dispute between Russia and Ukraine remained unresolved today as Putin and Ukrainian Prime Minister Yulia Timoshenko agreed yesterday to meet in Moscow to discuss the impasse on Jan. 17.
Emerging-market currencies in the region have fallen since the start of the year, led by a 6.1 percent slide in the Romanian leu against the euro and a 5 percent drop in the forint. Hungary’s currency was 0.8 percent lower today at 279.42 per euro. Poland’s zloty slid as much as 1.6 percent to 4.2440 against Europe’s common currency today, its lowest level since May 4, 2005.
Most Vulnerable
Hungary and Slovakia are the most vulnerable to OAO Gazprom’s stoppage of exports because they depend more on Russian gas for energy, according to UniCredit SpA. The stoppages have forced Romania to close two gas-import stations.
Industrial production dropped the most in 16 years in Hungary in November and the most in more than eight years in Romania as a recession in western Europe cut demand for exports.
Bank Rossii has devalued the ruble 16 times since Nov. 11, allowing it to weaken 21 percent against the basket, which is made up of about 55 percent dollars and 45 percent euros and is used to protect exporters from currency swings.
“The bottom line is that they need to get this over with and the faster the better,” said Rory MacFarquhar, Moscow economist for Goldman Sachs Group Inc., which forecasts a further 12 percent depreciation in the ruble versus the basket. “They’re still catching up with what happened in oil last year. They’re still getting it to a sustainable level.”
The ruble weakened 1.4 percent to 36.8044 versus the basket today. It closed at 36.2937 yesterday, when it was allowed to fall 1.4 percent. Devaluations in December averaged about 0.6 percent a day, according to data compiled by Goldman Sachs Group Inc. The currency fell by an average 1.5 percent in separate devaluations this week, according to data from Bloomberg and the Micex stock exchange.
‘One-Sided Bet’
Russia’s currency was 1.5 percent weaker at 32.2178 per dollar by 5 p.m. in Moscow. Russia took three zeros off the ruble on Jan. 1, 1998, replacing 1,000-ruble banknotes with 1-ruble notes. It fell 1.4 percent to 42.4555 per euro.
Investors see the ruble as a “one-sided bet” and are placing so-called short positions, or wagers it is going to fall further, said ACM’s Rosenstreich, who predicts a total ruble depreciation of 15 percent against the dollar and the basket in the first quarter. BNP Paribas SA, France’s largest bank, advises clients to short the ruble versus the basket.
The worst financial crisis to hit the country since it defaulted on $40 billion of debt in 1998 and investor concern about Russia’s invasion of neighboring Georgia in August spurred a record $129.9 billion to be withdrawn from the country last year, according to central bank figures released on Jan. 13. BNP Paribas estimates outflows between August and December at more than $200 billion.
The ruble is now able to fall about 20 percent below Bank Rossii’s target basket rate, from 3.6 percent on Nov. 11.
Budget Deficit
Russia may have a 4 trillion-ruble ($124 billion) budget deficit this year should Urals average $32 a barrel and the ruble fall to 34 per dollar, the Interfax newswire reported, citing unidentified people “close to the government.” It would also result in an inflation rate of 15 percent, the report said. Russian inflation was 13.3 percent in December.
Citigroup Inc. says it will fall another 8 percent against the basket this quarter, while Alexei Moiseev, head of fixed- income research at Moscow investment bank Renaissance Capital, forecasts another 13 percent depreciation in the dollar-ruble rate.
To contact the reporter on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net
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