The Ruble Continues its Slide

The value of the Russian ruble has sunk to new lows against the U.S. dollar and the euro, even as the Central Bank of Russia (CBR) raised its key interest rate again in an effort to arrest the free-fall in the currency and bolster the country's faltering economy.

The ruble dropped to a new low of below 57 against the dollar Friday and also to new depths against the euro. The drop came as tumbling oil prices fell to below $60 per barrel on continued concerns over global supply glut and muted demand outlook.

The 2-tier descent impacted the country's equity markets with Russia's MICEX stock index opening weak before recovering to close at 1,459.68 points, up 0.32 per cent.

The value of the ruble has fallen 42 percent this year. The Russian economy has been bolstered by U.S. and European sanctions imposed because of President Vladimir Putin's intervention in Ukraine in support of pro-Russian rebels fighting Ukraine's government forces as well as by the sharp decline in the price of oil, a cornerstone of Russia's economy.

Rise in Interest Rates

To boost the weakening ruble which has fallen by over 65 per cent against the dollar this year, the CBR on Thursday raised the interest rate by 1 per cent to 10.5 per cent, the latest in a series of hikes throughout the year in an attempt to rein in inflation and bolster the country's struggling economy.

However, Timothy Ash, head of emerging markets research at Standard Bank said that defending the ruble and fighting inflation were very low in the list of CBR's priorities.

"Don't expect the CBR to ride to the ruble's defense, with big rate hikes or FX (foreign exchange) intervention, the ruble will track oil, and find its own level," Ash said.

According to Ash, "…. there is some concern that the marked weakening in the ruble will create some systemic risk to banks and of a payments crunch, but the view likely is that by conserving FX reserves, these can be deployed later to 'pick up the pieces'."

Cina Coren
Cina Coren is a former Wall Street broker and financial advisor. She holds a Master's degree in Communications and spent many years writing for international news outlets and journalistic publications. Today, Cina spends most of her time writing internet articles and blogs, and reading various newspapers to stay on top of the news.