Russia’s creeping devaluation of the ruble gathered speed on Friday, with the fifth such move in six days fanning the concerns of Russian companies and citizens who have been moving their savings into dollars and euros.
The devaluations are bringing the ruble in line with the new reality for Russia’s once-buoyant economy, now on the verge of its first recession in a decade because of low prices and falling demand for oil and other export commodities. A source at the central bank confirmed the trading band had been widened again -- the fifth move since trade resumed after new year holidays on Sunday, and the 17th step since November.
The ruble weakened by around 50 kopecks or 1.3% on Friday to trade at 37.30 versus a euro-dollar basket. “It looks like they have a goal of getting the devaluations over with as soon as possible. We think there will be may be another 7-8% (weakening) and then they will pause,” said a dealer at a European bank in Moscow.
The ruble sank to a fresh low of 32.7 to the dollar after breaking below the 32 mark the previous day for the first time since Russia began to open its economy to market forces in the 1990s. The euro hit a record RUB 43.15.
President Dmitry Medvedev has described RUB 31-32 per dollar as a “red mark” which Russians last saw relatively recently and are thus ready to accept psychologically. Russians are mindful of the last major financial crisis, when in 1998 the ruble lost more than 2/3 of its value, and have been shifting savings and cash out of the ruble.
CHANGING SAVINGS IF THEY EXIST
Property firm DSK-1 said this week that from February 1, prices for flats will be based on the value of the ruble versus the euro-dollar basket, in a reminder of the widespread dollarization seen after the 1998 crisis when many shops listed prices in special currency units close in value to the dollar.
“Of course I have changed my savings into foreign currency. I don’t want to lose my wealth,” said banker Alexei, 31, outside an exchange point in snowy central Moscow. “Food will become more expensive, and medicines, health will become more expensive,” said businessman Evgeny, who was changing money into euros and dollars ahead of a trip abroad.
However, given that the average monthly salary is around RUB 18,000 ($560) and that only around a third of the population have savings accounts, many Russians simply have no spare cash to change. “I haven’t changed my savings, they simply don’t exist,” said courier Yury, 56.
Russia’s business press has kept abreast of the devaluations, with Vedomosti on Friday proclaiming “Run from the ruble!” But most of the papers with a more general or tabloid focus kept the currency’s record lows off their front pages if they mentioned them at all. “Whether you write about it or not, everyone can see the prices outside currency exchange points, and can make their own conclusions,” said Vladimir Tikhomirov, economist at UralSib.
“A fairly pessimistic scenario for the Russian economy is being established, with oil at $30 a barrel. When applied to the ruble exchange rate that could mean RUB 36-38 to the dollar,” he added, forecasting that such a rate could be reached by the end of this month. Such a depreciation would bring the central bank ever closer to its medium-term goal of a free-floating currency.
Russia has spent over a quarter of its gold and forex reserves cushioning the rouble’s path since August, fanning calls for a free-float or a big devaluation to avoid spending all of the money. The cash pile stood $426.5 billion by January 9. Interventions for the first five days of the current trading week, which started on Sunday, topped $20 billion, dealers say. (Reuters)