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02-12-2014, 10:01 AM
Russian rouble collapses: Putin hit as oil, Western sanctions bite
DOW JONES DECEMBER 02, 2014 10:37AM
Russian Ruble Crumbles as Oil Continues to Slide
People walk past a display with currency exchange rates in central Moscow as the rouble hPeople walk past a display with currency exchange rates in central Moscow as the rouble hit a new all-time low. Source: AP
Russian Ruble Crumbles as Oil Continues ...People walk past a display with currency...
THE Russian rouble has slumped to a fresh record low, shedding about 40 per cent of its value since the start of the year, because of plunging oil prices and Western sanctions.
Overnight the beleaguered currency suffered its biggest one-day fall since the 1998 financial meltdown, dropping by nearly 9 per cent at one point to 53.9 against the US dollar, as sliding oil prices increased worries about the Russian economy, a major producer of crude.
Later, the currency picked up, amid signs of moderate dollar sales by the Russian central bank, according to US traders, to around 52 by the end of the main trading session on the Moscow Exchange.
The rouble is now down nearly 40 per cent against the US dollar this year, making it the second-worst performer in the world due not only to falling oil prices but also Western sanctions imposed against Russia for its support for a separatist uprising in eastern Ukraine.
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Russia is the world’s second largest oil producer after Saudi Arabia, pumping out 12 per cent of consumption. Oil and gas account for about two thirds of Russia’s exports and half of state revenues, making its economy and asset prices heavily dependent on global energy prices.
The latest drop spooked other investors, as well, with Russia’s benchmark RTS stock index dropping and the cost of insuring the country’s debt jumping sharply yesterday.
“The rouble is a no-touch as long as oil prices go down. It is all about the oil, and the central bank’s slow reaction, as they don’t want to burn reserves too fast,” said Viktor Szabo, a portfolio manager at Aberdeen Asset Management. “It’s difficult to call the bottom with liquidity so thin and the oil price continuing to slide,” said Daniel Wood, portfolio manager at FFTW in London. “Although the oil price is a contributing factor to the currency move, I think that negative sentiment toward Russia is helping to exacerbate the move to current levels.”
After spending $30 billion to slow the rouble’s slide in October, the central bank last month announced it would allow the currency to float freely, intervening only in if market moves posed a major threat to financial stability.
Traders said yesterday’s action appeared to be the central bank’s first sales since announcing the free-float, but were moderate. The sales quickly reversed the market, but weren’t big enough to pull the Russian currency back into positive territory for the day. “The central bank isn’t willing to fight external trends,” said Egor Fedorov, an analyst at ING Bank in Moscow. ‘That is disappointing for a lot of people.”
Russian mother of two Elina Drozdova said of the plummeting currency: “This is shock and horror.’’
“The first thought is, ‘goodbye summer vacations’.” “Our lives are becoming expensive directly in proportion to the rise of the dollar and euro,” she said.
According to a new study by the polling company Public Opinion, 50 per cent of Russians said the falling ruble was having an impact on their lives.
The pollster said Russians were concerned about price hikes and inflation. “Prices are growing like mushrooms,” Public Opinion cited one respondent as saying.
Signs of panic buying have emerged in recent weeks, with many Russians hoarding buckwheat, one of the country’s main staples.
Crude oil prices bounced back from five-year lows in what analysts say may be just a technical correction after last week’s $US10-a-barrel plunge.
Prices have been on a slide since June driven by rising supplies and slow demand growth around the world. The fall accelerated last week on OPEC’s decision to maintain its output ceiling despite the global glut.
The collapse of the Russian currency comes as NATO foreign ministers prepare to meet in Brussels this week for talks that will be dominated by the crisis in Ukraine, where fighting between government forces and pro-Russian separatist rebels has killed over 4300 people and displaced nearly one million since April.
The West accuses Moscow of stoking the conflict and has imposed sanctions against Russia, sending relations plunging to Cold War lows.
Dow Jones, Wall Street Journal, AFP
DOW JONES DECEMBER 02, 2014 10:37AM
Russian Ruble Crumbles as Oil Continues to Slide
People walk past a display with currency exchange rates in central Moscow as the rouble hPeople walk past a display with currency exchange rates in central Moscow as the rouble hit a new all-time low. Source: AP
Russian Ruble Crumbles as Oil Continues ...People walk past a display with currency...
THE Russian rouble has slumped to a fresh record low, shedding about 40 per cent of its value since the start of the year, because of plunging oil prices and Western sanctions.
Overnight the beleaguered currency suffered its biggest one-day fall since the 1998 financial meltdown, dropping by nearly 9 per cent at one point to 53.9 against the US dollar, as sliding oil prices increased worries about the Russian economy, a major producer of crude.
Later, the currency picked up, amid signs of moderate dollar sales by the Russian central bank, according to US traders, to around 52 by the end of the main trading session on the Moscow Exchange.
The rouble is now down nearly 40 per cent against the US dollar this year, making it the second-worst performer in the world due not only to falling oil prices but also Western sanctions imposed against Russia for its support for a separatist uprising in eastern Ukraine.
Start of sidebar. Skip to end of sidebar.
MOREOil makes biggest gain in two years
End of sidebar. Return to start of sidebar.
Russia is the world’s second largest oil producer after Saudi Arabia, pumping out 12 per cent of consumption. Oil and gas account for about two thirds of Russia’s exports and half of state revenues, making its economy and asset prices heavily dependent on global energy prices.
The latest drop spooked other investors, as well, with Russia’s benchmark RTS stock index dropping and the cost of insuring the country’s debt jumping sharply yesterday.
“The rouble is a no-touch as long as oil prices go down. It is all about the oil, and the central bank’s slow reaction, as they don’t want to burn reserves too fast,” said Viktor Szabo, a portfolio manager at Aberdeen Asset Management. “It’s difficult to call the bottom with liquidity so thin and the oil price continuing to slide,” said Daniel Wood, portfolio manager at FFTW in London. “Although the oil price is a contributing factor to the currency move, I think that negative sentiment toward Russia is helping to exacerbate the move to current levels.”
After spending $30 billion to slow the rouble’s slide in October, the central bank last month announced it would allow the currency to float freely, intervening only in if market moves posed a major threat to financial stability.
Traders said yesterday’s action appeared to be the central bank’s first sales since announcing the free-float, but were moderate. The sales quickly reversed the market, but weren’t big enough to pull the Russian currency back into positive territory for the day. “The central bank isn’t willing to fight external trends,” said Egor Fedorov, an analyst at ING Bank in Moscow. ‘That is disappointing for a lot of people.”
Russian mother of two Elina Drozdova said of the plummeting currency: “This is shock and horror.’’
“The first thought is, ‘goodbye summer vacations’.” “Our lives are becoming expensive directly in proportion to the rise of the dollar and euro,” she said.
According to a new study by the polling company Public Opinion, 50 per cent of Russians said the falling ruble was having an impact on their lives.
The pollster said Russians were concerned about price hikes and inflation. “Prices are growing like mushrooms,” Public Opinion cited one respondent as saying.
Signs of panic buying have emerged in recent weeks, with many Russians hoarding buckwheat, one of the country’s main staples.
Crude oil prices bounced back from five-year lows in what analysts say may be just a technical correction after last week’s $US10-a-barrel plunge.
Prices have been on a slide since June driven by rising supplies and slow demand growth around the world. The fall accelerated last week on OPEC’s decision to maintain its output ceiling despite the global glut.
The collapse of the Russian currency comes as NATO foreign ministers prepare to meet in Brussels this week for talks that will be dominated by the crisis in Ukraine, where fighting between government forces and pro-Russian separatist rebels has killed over 4300 people and displaced nearly one million since April.
The West accuses Moscow of stoking the conflict and has imposed sanctions against Russia, sending relations plunging to Cold War lows.
Dow Jones, Wall Street Journal, AFP