Ruble Sees 15th Cut As Outflows Balloon

The Central Bank staged the third mini-devaluation of the ruble in four days on Wednesday, continuing a path of controlled currency weakening to adjust to low oil prices and a worsening economic outlook.

The ruble hit a record low versus the euro and a new six-year trough against the dollar. Falling oil prices, a worsening economic outlook and broad investor flight from emerging markets saw a record $130 billion flow out of Russia last year, Central Bank data showed Tuesday.

Russians, remembering a 70 percent ruble collapse in 1998, are also moving money into dollars and euros.

The currency weakened to 36.28 versus a euro/dollar basket that the Central Bank uses to guide currency policy, breaching the 35.80 mark previously seen as official support.

It is now more than 19 percent below its August peak but still has some way to go to catch up with a 65 percent slump in the price of oil over the same period.

"The sooner they get [the devaluation] over with the better. According to my forecasts, they are still 14 percent away from the end," said Rory MacFarquhar, senior economist at Goldman Sachs.

"The problem is that ... every time the Central Bank or the government tries to ... stimulate the economy by pushing money out into institutions there is a big likelihood that this money will very quickly find its way into the FX market."

A Central Bank official confirmed that the ruble's trading band has been widened for the 15th time since the regular mini-devaluations began just over two months ago.

"The market expected a weakening of the ruble in coming days. If not yesterday, then today. It is logical to expect further steps in this direction," said Viktor Anisimov, a dealer at Aljba-Alliance.

"The new Central Bank offer is thought to be at 36.30 rubles to the basket," he said.

Citigroup forecasts a further 10 percent decline in the ruble versus the basket this quarter, while Alexei Moiseyev, head of fixed-income at Renaissance Capital, is predicting a 14 percent drop against the dollar this month.

The ruble will slide 8.8 percent against the dollar to 34.76 in three months, according to nondeliverable forwards. Twelve-month NDFs, which fix a currency at a particular level at a future date, put the decline at 20 percent.

Russia's foreign currency reserves, the world's third-largest, fell by $160 billion, or 27 percent, in the last four months of 2008 as the Central Bank attempted to control the ruble's decline.

Analysts say Russia's gas dispute with Ukraine, which has already left some European countries without gas for a week, is another negative for the currency.

"It means that for the time being, Russia is being deprived of a portion of its export revenues," MacFarquhar said.

(Reuters, Bloomberg)