Ruble Devaluation Looms on Oil; Troika Sees 30% Drop (Update1)
By Emma O'Brien and Ye Xie
Nov. 10 (Bloomberg) -- Russia's currency reserves, the third-biggest in the world, are no match for tumbling oil prices and an exodus of capital that may force the central bank to accept a devalued ruble.
Just 10 years ago, Russia let the ruble fall as much as 71 percent as the government defaulted on $40 billion of debt and world stock and bond markets collapsed. Now, the combination of a 61 percent drop in oil prices from their peak in July, slowing economic growth and increasing investor concern about emerging markets are draining Russia's foreign reserves, which fell 19 percent to $484.6 billion in the 12 weeks through Oct. 31.
Russia, which uses reserves to curb swings in the ruble that hurt the competitiveness of exports, may find the resistance futile after the currency fell 13 percent against the dollar since Aug. 1. The central bank sold a record $40 billion in October, according to Moscow-based Trust Investment Bank. Troika Dialog, the country's oldest investment bank, said the currency may slump as much as 30 percent in the event of a devaluation.
Monday, November 10, 2008
Ruble Devaluation Looms on Oil;
I wonder if the party's over? It will be interesting to see if the Central Bank trumps the Russian government; the Bank would no doubt like to see a quick devaluation (and presumably a quicker end to any economic downturn) while the government, seeking political and social stability, would prefer a long slow decline. In any case, what will not change is that Russia will continue to be the world's biggest energy exporter...