Ruble Weakens Below Central Bank’s Target Rate of 36 Per Dollar

Russia’s ruble weakened to below the central bank’s target exchange rate of 36 per dollar, less than two weeks after Chairman Sergey Ignatiev widened the trading band and pledged reserves to defend the new level.

The ruble depreciated as much as 1.7 percent to 36.3550 per dollar, the weakest since January 1998. Ignatiev said Jan. 22 that the central bank would protect the currency at a level of 41 against its basket of dollars and euros, which translates to 36 per dollar. A Bank Rossii spokesman declined to comment.

“The pace of the move to the target is definitely going to be a source of concern to the central bank,” said Martin Blum, head of emerging-market economics and currency strategy at UniCredit SpA in Vienna. “Global risk appetite is continuing to deteriorate so the pressures on the ruble will continue.”

The ruble has slumped 35 percent against the dollar since August as a 63 percent drop in Urals crude oil prices and the worst global economic crisis since the Great Depression spurred locals and investors to withdraw about $290 billion from the country, according to BNP Paribas SA.

Bank Rossii expanded its trading range for the ruble 20 times since mid-November before switching policy to let “market” forces help determine the exchange rate within a widened limit. The expanded trading range would only be widened should oil, Russia’s biggest export earner, fall to $30 a barrel and stay there “for a long time,” Ignatiev said at the time.

Prime Minister Vladimir Putin said in a Jan. 25 interview with Bloomberg Television that Russia had set itself apart from other countries by using reserves so as not to “crush the national currency overnight,” avoiding a repeat of the crisis a decade ago when the ruble plunged as much as 29 percent in a day as the government defaulted on $40 billion of debt.

Draining Reserves

Russia reduced its foreign-currency reserves, the world’s third-largest, by more than a third to $386.5 billion as it bought rubles to stem the depreciation.

The ruble lost 0.7 percent to 40.5551 against the basket by 11:31 a.m. in Moscow. It dropped 0.6 percent to 46.0437 per euro. Russia manages the ruble against a basket made up of about 55 percent dollars and the rest euros to limit currency swings that disadvantage Russian exporters.

The dollar-ruble target was based on an exchange rate of 1.3 per euro, Ignatiev said at the time. The dollar jumped 0.5 percent to 1.2753 per euro today, after gaining 1.3 percent last week.

Accelerating Drop

The dollar’s strength accelerated the ruble’s depreciation against the U.S. currency target. Bank Rossii will defend the level of 41 against the basket until the attrition of reserves becomes “unsustainable,” said Blum at UniCredit.

The central bank, which sold foreign currency from Jan. 28 to 30 to mitigate the ruble’s drop, is yet to be seen making offers on the market today, said Evgeny Nadorshin, senior economist at Trust Investment Bank, citing the Moscow-based lender’s currency traders.