Under mounting pressure from plummeting oil prices, the Russian ruble sank on January 20 to a new low of 82.5 to the US dollar and 90 to the euro on the Moscow Stock Exchange, fuelling calls for government intervention.
The previous record was set during the currency panic of December 16, 2014, when the currency fell to RUB80.1 per dollar. The latest slump was driven by the $27.9 per barrel price of March futures for Brent crude on London's ICE Futures exchange. The dollar rate was higher only prior to ruble denomination in 1998.
Elvira Nabiullina, head of the Central Bank of Russia (CBR), said the ruble exchange rate is now close to a fundamentally fair level, according to TASS. Nabiullina reiterated that the regulator "sees no risks to financial stability" and will not resort again to direct currency interventions to support the national currency as it did in mid-2015.
However, Russian presidential adviser Sergei Glazyev advocated immediate intervention, saying that "the foreign exchange reserves' task is to keep the national currency stable. This is what they are built up for."
"A situation where the CBR unilaterally interprets the instruction not to 'waste' the reserves and quits the market of its own volition cannot but cause surprise or make the whole world laugh," TASS quoted Glazyev as saying.
The regulator may return to supporting the ruble and intervene when the rate hits RUB90 per dollar, Bloomberg reported on January 20, while two out of 15 analysts it interviewed saw RUB80 as the likely threshold for intervention. The interventions may be followed by an increase in the key interest rate, which is currently at 11%, reversing a series of cuts in the key lending rate to stimulate growth.
Having effectively free-floated the ruble in the fall 2014 and switched to inflation targeting, the CBR last sold US dollars in currency interventions in January 2015, after monthly interventions throughout 2014. These ranged rom $3bn to peaks of over $20bn and significantly eroded Fx/gold reserves.
Amid some ruble stabilisation and plateauing recession in spring 2015, the CBR even started to acquire currency off the market daily to replenish reserves, buying almost $10bn in May-July 2015 despite adverse ruble effects.
However, the regulator halted these operations in the end of July 2015 as oil prices decline pushed the ruble to break the "psychological" thresholds of RUB60 per dollar and RUB67 per euro.
Meanwhile, as the finance ministry in Moscow scrambles to cut 10% from the 2016 budget, Bank of America economists estimate that at $25 per barrel, the dollar should cost RUB210 to cover the current spending level.