Ruble crosses rubicon of 40 to the dollar

By bne IntelliNews October 6, 2014

bne -


The value of the dollar topped the psychologically important mark of 40 rubles at the opening of trading on the Moscow exchange on October 6, a new historic low in the ongoing slide of the ruble. The dollar exchange rate jumped by 5 kopecks to hit 40.0535 rubles.

The ruble exchange rate had already come under heavy pressure on October 3, with the Central Bank (CBR) believed to have spent at least $700m supporting the currency. The ruble dropped from RUB44.40 to RUB44.50 against the dual currency Euro-dollar basket used by the central bank to control the value of the ruble, prompting the central bank to raise the upper limit of the trading corridor by 10 kopecks to Rub44.5 on October 6, for the first time since May. 

"We believe that the strong move in the exchange rate last week was due to the lack of FX sellers, exacerbated by rumours of capital controls that were reignited last week," wrote Alfa Bank's Dmitry Dolgin.  "The thin market renders the exchange rate vulnerable to any negative news flow, global or local, despite the current account surplus, which we believe to be high due to falling imports," he added.

Pressure on the ruble stems in part from the declining price of oil, Russia's principle export, despite tensions running high across the Middle East. This implies the price of oil could drop further on tensions easing.  "If you don't think oil prices will rebound, the only thing Russia can do is devalue the ruble," Yerlan Syzdykov, head of emerging debt at Pioneer Investments, told the Moscow Times. 

At the same time, because of Western sanctions on leading Russian state-owned companies including the largest banks, Russian corporates find it nearly impossible to rollover dollar debt, forcing them to buy dollars on the domestic market to pay down debt.  "The central bank is hoarding dollars knowing that if someone is not able to refinance external debt it may have to step in and provide dollars, so they really need to start saving," Syzdykov told the Moscow Times.

Central Bank reserves could plunge

If the Bank of Russia is forced to prop up the exchange rate of the ruble, Fitch forecasts Russia's international reserves would shrink from $465bn on September 1 to $450bn at the end of 2014 and to $400bn at the end of 2015 because of the sanctions.

The financial account of the balance of payments has already experienced a direct negative effect from sanctions equalling 2% of GDP, said Maxim Oreshkin, Director of the Department at the Finance Ministry, representing the price for the closed external markets. 

The fall in oil prices from $110/barrel to $93/barrel initiated a comparable shock: according to the Finance Ministry estimates, a fall by $17 means a reduction in exports of $55bn per year -  about 2% of GDP - on the balance of trade. Therefore, the total negative effect for the balance of payments amounted to about $100bn.

Oil price is the major risk for the 2015 budget, which assumed  a price of $100/barrel, compared to a current price of $93. The budget includes a 11% rise in expenditures and in order to finance the deficit the government will have to borrow RUB800bn on the domestic market and $7bn on the external market, Maxim Oreshkin said. "Any risks for the income and loans will exert pressure on the Reserve Fund,” he said. According to the projected budget for 2015, the government could spend RUB0.5 trillion from the Reserve Fund.

"We are surprised that while the CBR now has the opportunity to lower speculative net capital outflow by raising the key rate, it prefers to finance it with FX interventions instead," wrote Alfa Bank’s Dolgin. "We reiterate that an ahead-of-schedule rate hike would be a positive sign for the market, while failure to do so would indicate that the CBR could be facing obstacles to transitioning to ruble free-float."

The Bank of Russia plans to to let the ruble float free at the beginning of 2015.

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.