Russia’s Central Bank Devalues Ruble for Third Time in Week

Russia devalued the ruble for the third time in a week, sending the currency to its lowest level against the dollar since January 2006, as oil’s drop below $37 a barrel dimmed the outlook for growth.

The ruble, down 18 percent against the dollar since the beginning of August, weakened 0.9 percent against the U.S. currency to 28.6905 and 1.4 percent versus the euro to 40.1773, near an all-time low.

The central bank allowed the ruble to fall about 1 percent against a basket of dollars and euros, accelerating the slide after spending 27 percent of reserves, or $162.7 billion, trying to defend the currency over four months. Oil, Russia’s biggest export earner, lost 4 percent to $37.43 on the New York Mercantile Exchange and is down nearly 75 percent since the July high. The government requires oil to average $70 to balance its 2009 budget.

“As long as oil remains depressed and at many year lows the central bank has no other choice but to carry on with its devaluation,” said Mikhail Galkin, head of fixed income research at MDM Bank in Moscow.

The currency has fallen 14 percent against the dollar and 11 percent versus the euro this year amid the plunge in oil, international condemnation of the country’s war with Georgia and the spreading global credit crisis. BNP Paribas SA estimates investors withdrew $211 billion from Russia since August. The nation’s oligarchs, who and took over assets of the biggest companies after the collapse of the Soviet Union in 1991, are vying for $78 billion of Kremlin loans to meet debt payments.

Recession

The economy, which recovered from the government’s 1998 debt default to expand an average 7 percent in the eight years to 2007, may slip into a recession in the first half of 2009, Kremlin economic adviser Arkady Dvorkovich told Bloomberg Television on Dec. 19.

The government will post a budget deficit next year for the first time in a decade and will use its $132.6 billion reserve fund, or extra oil revenue the government has set aside, to cover the financing gap, Dvorkovich told reporters in Moscow today.

An “accelerating” ruble devaluation is “detrimental” to economic growth because it stimulates currency speculation and limits new lending, Evgeny Gavrilenkov, chief economist at Troika Dialog in Moscow, wrote in a research note today. Troika Dialog earlier called for a one-time depreciation of as much as 20 percent.

“If in 2009 the oil price is between $30 and $40 and the state carries on with its strange policies on the money market, the possibility of an economic downturn will rise,” Gavrilenkov said.

Currency Basket

The ruble fell 1.2 percent against the basket of dollars and euros that the central bank uses to manage its fluctuations, and traded at 33.86 at 5:02 p.m. in Moscow.

Bank Rossii allowed the ruble to decline against its currency basket for the third time in four working days and the 10th time since Nov. 11, according to a central bank official who declined to be identified.

The Micex stock index fell for the first time in four days to 654.29, a drop of 1.1 percent.