Ruble Devalued 6 Times in 5 Weeks

MTThe ruble's trading band against the dollar/euro basket was widened again to leave the basket at 32.32 rubles.
Russia allowed the sixth mini-devaluation of the ruble in five weeks on Monday, gradually caving in to downward pressure on the currency from falling oil prices and a worsening economic outlook.

A Central Bank source confirmed that the trading band had been widened again on Monday. The ruble weakened to 32.21 against a basket of 0.55 dollars and 0.45 euros from 31.87 on Friday.

"It is possible that they will speed up the depreciation of the ruble, for example to twice a week," said Stanislav Yarushevichus, head of trading at ING in Moscow, adding that the ruble "still looks unjustifiably strong."

Most of the ruble devaluations versus a euro-dollar basket have coincided with periods of dollar weakness. As a result the brunt of the ruble devaluations have been borne by the euro component of the basket, and this has minimized the pain for ordinary Russians who focus on the dollar/ruble rate.

With reserves shrinking fast, the Central Bank started widening the ruble's trading band by 30 kopeks in each direction at roughly weekly intervals from Nov. 11.

The ruble is now 5.5 percent weaker versus the basket since the regular devaluations started, taking its losses since the historic peaks set in early August to 9 percent.

The devaluations have received scant coverage on Russia's mostly state-controlled television and to date there are few signs of panic on the streets, although statistics show people are slowly shifting money into foreign currency.

"What allows them to widen the ruble trading band so actively is the strong euro, which means the dollar/ruble exchange rate remains virtually unchanged," said Alexandra Yevtifyeva, an analyst at VTB Capital.

"For us the dollar/ruble rate is still an important indicator of stability for the population."

The ruble has lost less than 3 percent against the dollar since Nov. 11 although it is down about 20 percent from summer peaks. The dollar hit a two-month low versus the euro on Monday.

Alexei Ulyukayev, the Central Bank's first deputy chairman, said Saturday that the regulator was not about to scrap the ruble band but was moving towards "a quasi-free" float.

Russia is now in a much stronger position than a decade ago, with little government debt and still the third-biggest reserves in the world. But there are signs of a sharply slowing economy and high levels of corporate debt.

"A strong ruble is generally viewed by the population as an important proxy for the competence of the state," Frank Gill, credit analyst at Standard & Poor's wrote in an article in The Moscow Times on Monday.

"If key export prices remain weak, the relative prices of domestically produced goods to imported ones will need to adjust. … This is generally achieved via a sizeable exchange rate adjustment."