Ruble Allowed to Slide for 2nd Day

MTA board displaying currency exchange prices in central Moscow on Thursday.
The Central Bank allowed the ruble to weaken Thursday for the third time this week, speeding up a managed depreciation prompted by weak oil prices and the prospect of recession.

A strong euro offered a window of opportunity to let the currency fall for a second day versus the euro-dollar basket, taking the brunt of the ruble weakness and shielding companies and citizens who tend to focus on the dollar/ruble rate.

Having spent $100 billion on currency support since early August, Russia started a gradual devaluation Nov. 11.

A Central Bank source confirmed Thursday's widening of the ruble trading band -- the eighth in under two months -- but declined to say where the new corridor boundaries were.

The ruble slumped to 33.11 to the basket before recovering some of the losses to 32.86. It has lost 8 percent since the regular devaluations began and more than 11 percent from a midyear peak. "It looks like the process is accelerating," said Stanislav Yarushevichus, head of trading at ING in Moscow, adding that 33.11 could be the new official support level but that it was too soon to tell. Other dealers agreed about the level.

The euro has gained about 9 percent versus the dollar this week, heading for its best weekly showing ever, and Thursday's weakening of the ruble saw the euro gain nearly 3 percent to a record high of more than 40 rubles.

Against the dollar, the ruble has held in a range of 27 to 28 rubles since the start of November, though it is still around 20 percent off peaks reached earlier this year.

"They are speeding up the process because now we have such a move in the euro-dollar rate," said Natalya Orlova, chief economist at Alfa Bank.

"If the euro-dollar rate stabilizes around these levels we probably won't see much more in the way of ruble depreciation this year. They are trying to keep the ruble-dollar broadly stable. ... This stabilizes the mood of the population."

Darkening the currency's future prospects, the Economic Development Ministry said Thursday that 2009 would bring capital outflows of $90 billion, a current account deficit and an economic contraction lasting until at least midyear.

The ministry's 2009 dollar-ruble forecasts and euro-dollar assumptions suggest the ruble will be in the 34 to 36 range versus the basket next year.

Many analysts are more pessimistic. With oil prices at less than half the $95 level factored into next year's budget, and recession a possibility, Citi expects the ruble to end 2009 at 37.79, and this year at 34.94 to the basket.

If Russia continues to move in 45 kopeck steps, that would imply a further four devaluations in the remaining days of 2008.

Other analysts say a free float -- to which Russia had been slowly moving during the ruble appreciation days but which authorities have ruled out in the near future -- is the best way to limit pain for the economy and the drain on reserves.