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. Last Updated: 07/27/2016

Ruble Hits 2-Year Low Vs. Dollar

ReutersA worker updating a board displaying the day's currency exchange rate.
The ruble fell to the lowest level in more than two years against the dollar as oil stayed below the average price needed to balance the country's budget next year.

Nine of 10 banks surveyed forecast that the ruble will weaken next year as lower prices for crude push the current account into deficit.

"People seem to be pricing in a devaluation, the market is a bit too panicked," said Tatyana Orlova, an economist in Moscow at ING Group, which predicts that the ruble may depreciate next year. "The oil price has a big impact on Russian asset prices."

The ruble, which the Central Bank manages against a basket of 55 cents and 45 euro cents, fell as much as 0.5 percent to 27.07 per dollar, the lowest since July 2006. The ruble was 0.2 percent lower at 26.97 by 5:50 p.m. in Moscow.

Trading in derivatives shows the ruble at a five-year low versus the dollar in three months time. It rose 0.2 percent to 34.54 per euro.

The Central Bank buys and sells foreign currency reserves to keep the ruble within a trading band against the basket and limit the effect of its swings on the competitiveness of Russian exports.

Against the basket, the ruble was at 30.388, from 30.392 on Wednesday. The 30.40 level is regarded by most analysts to be the weakest end of the trading band.

Citigroup and Goldman Sachs predict that the ruble will lose as much as 5 percent versus the basket in the next 12 months. Danske Bank, one of the top five traders of the ruble via its Finnish unit Sampo Bank, sees it at 28.90 per dollar and 31.20 versus the basket in the next year.

Concern that the Central Bank may allow a devaluation of the ruble is making banks reluctant to exchange the currency for dollars and is driving the rate at foreign-exchange kiosks to near 28 per dollar, said Vladimir Tikhomirov, chief economist in Moscow at UralSib. "There is growing demand for dollars both from institutional players like banks and the population."