Jun. 5 – The Russian ruble recently sunk to 33.48 rubles against the U.S. dollar – its lowest level since April 2009. The ruble has been declining for seven days and lost some 3.5 percent during the last week as oil prices went down.
The Russian economy is strongly dependent on oil exports, but oil prices have slumped recently as the U.S. dollar has risen to a two-year high against the euro amid the ongoing European debt crisis.
Oil is priced in dollars and a stronger dollar makes the commodity more expensive, thus reducing demand. The Urals blend, which is viewed as a benchmark price for the oil that Russia exports, dropped 3.4 percent to US$100.60 on Wednesday and lost a total of 4.5 percent last week.
Russia’s Central Bank increased daily sales of dollars and euros to slow the depreciation of the ruble against its target basket, according to the local press.
“We’re prepared for any scenario,” Deputy Prime Minister Arkady Dvorkovich told RIA-Novosti. “But we have the reserves necessary for dealing with a crisis if there is one.”
Russia holds over US$513 billion in international reserves which include foreign currency, gold and special drawing rights.
According to some estimates, the regulator is selling the equivalent of about US$200 million a day since the ruble started declining. Usually it is selling US$100 million to US$150 million a day. On Friday, traders said the Central Bank upped its dollar sales to about US$300 million.
“Something similar happened last September and October,” Sergey Ignatiev, the Central Bank chairman told reporters. “There was also a crisis in Europe, there was also a drop in the oil price.”
Analysts also attribute the ruble’s decline to increasing anxiety regarding the eurozone economies of Greece, Spain and Italy, prompting speculation that demand for Russia’s number one commodity could slump.
However, Mikhail Anisimov, head of foreign exchange trading at VTB Capital, said oil and the eurozone could not account for all the turmoil.
“The ruble is oversold relative to oil,” he said. “But it could easily go lower.”
He said the impact of the announcement by BP (the largest foreign investor in Russia) that it was looking to sell its stake in its joint venture TNK-BP had hit markets which were already jittery about capital flight abroad.
Moscow-based investment bank Renaissance Capital last week warned of the upcoming depreciation of the ruble, but noted that the Russian currency so far looked better than many other currencies from emerging economies which were also battered by an uncertain outlook for the eurozone.
Renaissance Capital sounded confident that a weaker ruble would not speed up inflation.
“Russians no longer respond to the weakening of the ruble by rushing to convert their savings into forex,” the bank said.