Merrill Lynch Sees Ruble Losing 20% in 2009

Merrill Lynch said falling oil prices may trigger a 20 percent slump in the currency by the middle of next year.

"Demand for oil will fall globally in the first quarter of next year, and that means a hugely different environment for Russia," Gary Dugan, Merrill's chief investment officer, said Wednesday. "The ruble will weaken virtually in tandem with the fall in the oil price."

The ruble has lost more than 11 percent this year as a seizure in global debt markets and a 50 percent plunge in Urals crude to $46.47 a barrel spurred investors to withdraw more than $180 billion since August, according to BNP Paribas data.

While some weakening of the ruble is justified at a time of weaker oil prices, a sharp currency move could be painful for companies, the European Bank for Reconstruction and Development said Wednesday.

The EBRD expects growth to slow to about 3 percent next year — which would be its slowest rate since 1998 — if Brent oil averages $75 per barrel.

Faced with slower growth and strong downward pressure on the currency, the Central Bank has widened the ruble's trading corridor twice this month, each time allowing it to weaken by 1 percent versus a euro-dollar basket.

"Russia has suffered commodity price shocks. In a situation like this, some depreciation of the ruble is appropriate," said Jeromin Zettelmeyer, director for policy studies at EBRD.

"But a large depreciation of the ruble could create problems because Russian companies have debt denominated in foreign currency," he said.

The weakening of the ruble has attracted criticism from analysts, who say the piecemeal approach leaves future policy unclear, meaning that the pressure on the ruble remains and chances of the need for a big one-off move are growing.

(Bloomberg, Reuters)