Weakening Ruble Loses 7% in a Week

APTraders waiting for customers at the empty Dorogomilovsky food market near Kievskaya metro station on Friday.
Russia's creeping devaluation of the ruble gathered speed on Friday, leaving the currency with losses of nearly 7 percent for the week.

The devaluations are bringing the ruble in line with the new reality for Russia's once-buoyant economy, now on the verge of its first recession in a decade because of low prices and falling demand for oil and other export commodities.

A source at the Central Bank confirmed that the trading band had been widened again — the fifth move since trade resumed after New Year's on Sunday, and the 17th step since November.

The ruble ended the week at 37.32 versus a euro-dollar basket. It has lost one-fifth of its value since August.

"Such a fast pace of ruble depreciation in the last few days suggests that the finishing line is only weeks away, perhaps before the end of January," said Yevgeny Nadorshin, analyst at Trust National Bank.

"I see the current moves as a sprint to the finishing line."

Ensuring that the ruble's depreciation remains gradual has cost Russia more than one-quarter of its reserves in the last five months. Dealers estimate that the Central Bank spent $26 billion on interventions this week, out of the remaining $426.5 billion.

The ruble sank to a fresh low of 32.7 to the dollar after breaking below the 32 mark the previous day for the first time since the 1998 redenomination. The euro hit a record 43.24 rubles.

President Dmitry Medvedev has described 31 to 32 rubles per dollar as a "red mark," which Russians last saw relatively recently and are thus ready to accept psychologically.

Property firm DSK-1 said this week that from Feb. 1, prices for apartments will be based on the value of the ruble versus the euro-dollar basket, in a reminder of the widespread dollarization seen after the 1998 crisis, when many shops listed prices in special currency units close in value to the dollar.

"Of course I have changed my savings into foreign currencies. I don't want to lose my wealth," said banker Alexei, 31, outside an exchange point in central Moscow.

Given that the average monthly salary is around 18,000 rubles ($560) and that only around one-third of the population have savings accounts, many Russians simply have no spare cash to change.

The country's business press has kept abreast of the devaluations, but most papers with a more general or tabloid focus have kept the currency's record lows off their front pages — if they have mentioned them at all.

"Whether you write about it or not, everyone can see the prices outside currency exchange points and can make their own conclusions," said Vladimir Tikhomirov, economist at UralSib.

"A fairly pessimistic scenario for the Russian economy is being established, with oil at $30 a barrel. When applied to the ruble exchange rate that could mean 36-38 rubles to the dollar," he said , forecasting that such a rate could be reached by the end of this month.

Such a depreciation would bring Russia ever closer to its medium-term goal of a free-floating currency, analysts say.