Business | Oil & Gas
Russia devalues rouble as oil plunges to record low
Russia staged the seventh mini rouble devaluation of the month yesterday, a day after the price of oil plunged to four-year lows, heralding economic woe and twin deficits in 2009.
- Reuters
- Published: 23:29 December 24, 2008
Moscow: Russia staged the seventh mini rouble devaluation of the month on Wednesday, a day after the price of oil plunged to four-year lows, heralding economic woe and twin deficits in 2009.
A sure-fire appreciation bet at the start of this year, the rouble has fallen victim to the collapse in the price of oil and other Russian exports, the global and domestic economic slowdown and the broad-based capital flight from emerging markets.
The central bank has spent over $100 billion (Dh367.3 billion) defending the currency in the last four and a half months and, faced with shrinking reserves, embarked on a gradual depreciation path six weeks ago.
The rouble weakened one per cent in the first minutes of trade on Wednesday, to 33.79 versus a euro-dollar basket. A central bank source confirmed the trading band had been widened.
The rouble is now over 15 per cent below historic peaks set in early August. Oil, the main export of Russia's resource-focused economy, has lost nearly 70 per cent.
"All the commodity currencies have devalued and the rouble is a laggard here," said Alexei Moisseev, analyst at Renaissance Capital, estimating that the basket would be fairly valued at around 36 roubles, implying a further 6.5 per cent weakening.
"Judging by the pace they are moving at, they could do two more moves before the end of the year.
"When you are going at such pace, there is a real chance it will help, it is a real alternative to a [big] one-off devaluation."
A Reuters poll this week showed the rouble weakening to 36.24 to the basket by end-2009, while reserves fall a further $100 billion to around $330 billion, broadly in line with the Economy Ministry's assumptions.
Avoid spreading panic
With the controlled devaluations, the central bank hopes to save some of Russia's reserves and avoid spreading panic among the population while adjusting the exchange rate to reflect low commodity prices and the possibility of an economic recession.
Faced with a weakening currency and mindful of the 1998 financial crisis and rouble collapse, Russian citizens and companies have started to shift money into dollars or euros.
In a consumer finance piece entitled "Forget about the rouble" one of Russia's leading business newspapers Vedomosti last week advised on foreign currency accounts.
However, the central bank has been careful to time most of the devaluations with periods of dollar weakness, meaning the brunt of the moves has been borne by the euro/rouble rate - which hit record highs last week - while the more closely watched rouble/dollar has been broadly steady.
Moscow (AFP) A senior Russian interior ministry official warned yesterday that the country's worsening economic situation could spark popular unrest, RIA Novosti news agency reported.
"The current situation may aggravate the protest mood caused by discontent among the country's working population over unpaid wages or the threat of layoffs, as well as unpopular measures implemented as part of the anti-crisis programme," the agency quoted deputy Interior Minister Mikhail Sukhodolsky as saying.
Ill-fated decision
His comments came several days after riot police in the Pacific port city of Vladivostok forcibly broke up a rally of 1,000 demonstrators protesting a government decision to raise import tariffs on used foreign cars to protect the local industry.
The decision was meant to protect Russian automakers from the world economic slowdown.
It, however, has provoked angry protests in Vladivostok, where several thousands are employed in the industry of importing used and cheap cars from nearby Japan.
Some observers have, however, warned that Russia's mounting economic woes could lead to further anti-government protests.
Sukhodolsky said the crisis could also increase crime by destitute people.
He singled out the many foreign workers currently employed in Russia.
"The reality is, the country could face a significant increase of marginal elements without the means to live," he said, quoted by RIA Novosti.
"There is special concern about illegal immigrants, as well as legal foreign workers tricked by their employers.
"It is already possible to establish a certain growth of crime committed by foreigners," he said.
Soviet nightmare
Many of Russia's construction workers and other menial labourers come from impoverished former Soviet republics of Central Asia.
Earlier this month, about 250 Tajik builders halted work on a construction site in the Russian city of Yekaterinburg to protest unpaid wages, in what the Kommersant newspaper called the first major strike of the financial crisis.
Share this article
More from Oil & Gas
More from Business
Popular in Business
-
Budget travel
Airlines in the region
Take a pictorial look at some of the budget airlines in GCC
Business Editor's choice
-
It costs a million to raise a child
Generation Z doesn't leave home at 18, but stay with the parents until mid-20s
-
Investing in funds doesn't come cheap
Many people are unaware of the effect of different expenses on their returns
-
Firm turns televised events into marketing dream
Drops anchor in Dubai to sell world's richest yachting races
