Russia's ruble hits new record low as oil price adds pressure14 october 2014, 13:05
Russia's ruble slumped Monday to new all-time lows against the euro and dollar despite the central bank spending billions to defend the currency as the spillover from the Ukraine crisis and falling oil prices pummel the economy, AFP reports.
The ruble dropped to 51.27 to the euro, breaking through a previous low seen in March in the wake of Moscow's annexation of the Black Sea peninsula of Crimea from Ukraine.
The national currency also briefly dropped against the dollar to a record rate of over 40.50, falling further from the psychologically important mark of 40 to the dollar that it broke through last week.
The fresh slump came after Russia's central bank chief Elvira Nabiullina said it had pumped some $6 billion into propping up the currency over the past ten days.
Nabiullina however ruled out establishing a fixed exchange rate in a bid to stop the decline.
"Setting a fixed exchange rate would, in my opinion, be a counterproductive decision and in contradiction of market factors," Russian news agencies quoted her as saying.
VTB Capital warned that an increasingly worried population was beginning to watch the ruble "more closely" but said that there was not yet a rush to convert rubles into foreign currencies.
"All focus remains on the local currency, given the (central bank's) consistent interventions and the population’s increasing jitters, as it hovers around the psychologically important level of 40," to the dollar, Alfa Bank wrote in a note to clients.
Russia's economy has been hit hard by the fallout from the Ukraine crisis, that has seen the EU and US impose the harshest sanctions on Moscow since the end of the Cold War.
The sanctions have cut a raft of major Russian firms off from key international debt markets, with estimates of some $55 billion of loan repayments coming due by the end of the year.
Capital flight from the country has rocketed and is set to reach some $100 billion this year, according to the International Monetary Fund, while inflation has risen to over 8 percent.
In recent days, Russian President Vladimir Putin appears to have been trying to reduce tensions and he is scheduled to meet with Ukrainian leader Petro Poroshenko on Friday.
Over the weekend he ordered nearly 18,000 troops who had been deployed near the border back to their bases.
The fall in the ruble makes imported goods more expensive for Russians, and could eventually undermine popular support for Putin which has in large part been based on the country's economic improvement since he took power in 2000.
Oil price hurts finances
The announced troop pullback did little to staunch the slide of the ruble, and the fall in oil prices has added pressure on the government which remains heavily reliant on oil revenues.
Oil prices on Monday fell to a fresh four-year low, with Brent North Sea crude diving to just over $88.
That level is well beneath the $100 per barrel mark, the price which Russia needs to shore up its public finances.
Renaissance Capital warned that a sustained drop in oil price to around the $90 mark would see the ruble hover close to 41 to the dollar, while a drop of another $10 could see it hit 42.
"We estimate growth is likely to remain positive only with oil prices above $92-93/barrel.
"Otherwise, we see growth turning negative and the ruble hitting new lows," it said in a research note.
"However, a weaker ruble is likely to stabilise the current account and also alleviate the effects of a drop in oil prices on the budget."