Prompted by the fall in the oil price, the Russian ruble fell sharply
on its first day of trading after a ten-day holiday period, raising
concerns over the country’s energy-exporting economy. Russia relies on
energy for about half its budget revenues and 40% of its exports.
On January 11, the national currency dropped by nearly 2% half an
hour into trading, to 76.1 rubles, as the Moscow exchange resumed
trading in foreign exchange for the first time since December 31.
Natalya Orlova, chief economist at Russia’s Alfa Bank, told New
Europe on January 11 that ruble is following oil prices. “Unfortunately,
a lot will depend what will happen to the global economy and with oil
particularly,” she said. “We do expect ruble to go to around 80 – ruble
to dollar – so there is more downside potential, but I would not be
extremely pessimistic like people now mentioning level 100 – ruble to
dollar. I think it’s too exaggerated,” Orlova said.
Oil prices have declined over the past week amid fears about a
slowdown in China’s growth. Russia has also been hit by economic
sanctions that Western nations imposed following the 2014 annexation of
Ukraine’s Crimea.
The sharp decline in the price of oil, now trading at 12-year lows at
$34 per barrel for Brent crude, will likely cause a drain on Russia’s
reserves and push the government to cut down on expenses.
Russia has based its budget this year on an average oil price of $50
per barrel and Finance Minister Anton Siluanov indicated last month that
the government is prepared for cuts if crude were to fall to $30.
Russia is running a budget deficit of 3% of GDP this year and since
President Vladimir Putin has ordered it to be kept below that level, the
government will have to let the ruble depreciate further to balance the
budget.
Speaking in an interview with the German newspaper Bild published on
January 11, Putin sought to assuage fears of an economic crisis. “We
believe that we will gradually be looking at the stabilization and the
rise of the economy,” he said, adding that the government is investing
in the high-tech industry and domestic manufacturing, which should help
growth in the future.
Putin acknowledged in the interview with Bild that Western economic
sanctions over the Ukraine crisis are affecting Russia. “Concerning our
possibilities on the international financial markets, the sanctions are
severely harming Russia,” he said, calling the EU sanctions “a theatre
of the absurd”.
Moscow has been hit by US and European sanctions over the conflict
between pro-Russian separatists and Ukrainian forces, which has claimed
more than 9,000 lives since April 2014. In late December, the EU
extended its sanctions by six months, arguing that the Minsk peace
agreement signed by Moscow has not been fully implemented.
Putin said, however, “the biggest harm is currently caused by the
decline of the prices for energy”. “We suffer dangerous revenue losses
in our export of oil and gas, which we can partly compensate for
elsewhere,” he said. “But the whole thing also has a positive side: if
you earn so many petrodollars — as we once did — that you can buy
anything abroad, this slows down developments in your own country.”
Orlova reminded that the ruble is now more-or-less in free-floating
and “volatility is high”. “Liquidity is squeezed, companies have to pay
their foreign investors, no possibility to refinance their foreign
obligations,” she said. “Of course, weak ruble is helping some
companies, it’s helping the exporters because the ruble profits are
going higher, it’s helping the budget because it’s compensating for the
decline in oil prices, but overall I would say the fact of the declining
revenues, it’s more important than the fact of the price so local
producers are not able to benefit,” Orlova said.
http://neurope.eu/article/russian-ruble-oil-price-tumble-and-fall/