Russia’s currency has dropped considerably along with the price of crude oil. It’s a reminder of the Russian economy’s extraordinary level of dependency on fossil fuel exports, pundits says.
Foreign exchange traders in Moscow on Monday saw the ruble sink 2.3 percent to a new low for the year. At one point during the day’s trading it took 71.2 rubles to buy a dollar (81.6 rubles bought a euro).
Russia’s currency has lost more than 20 percent against the dollar in the past two months – and has declined in value against the euro by nearly half since May.
Prime Minister Dmitry Medvedev acknowledged the cause as the currency’s close linkage to the global oil price in remarks to the press on the weekend. “The most important thing in this sort of situation is not to get nervous, and to avoid making hasty decisions,” he said.
China stalls, oil falls, ruble follows
Oil prices fell 4 percent to their lowest level since six and a half years ago. The proximate cause: Chinese stock markets saw their biggest one-day drop since the global financial crisis, increasing worries that a major economic slowdown could ensue in China that would bring a reduction in global oil demand in tow.
The ruble most closely tracks the price of “Brent crude” – oil of the type produced in the North Sea off Britain and Norway. The price of a barrel of Brent crude dropped to $44.20 in trading on Monday, the lowest level since March 2009.
Russia’s dollar-denominated RTS stock index fell nearly 4.5 percent by 11 AM GMT on Monday, and the ruble-denominated Micex index dropped 1.76 percent before recovering slightly in afternoon trade.
The woes of a single-commodity-driven economy
A low ruble means higher prices for imported goods, and so Russia has a high consumer price inflation rate. The average annualised rate in 2015 stands at 16 percent. Interest rates set by the Russian central bank are correspondingly high, with the key rate currently at 11 percent.
Russians are also taking fewer holidays abroad in view of their currency’s reduced purchasing power, which has dampened tourism business in European destinations favored by Russians, such as the Mediterranian island of Cyprus.
The net result of low oil and gas prices: Russia is in recession. Gross domestic product (GDP) contracted by 4.6 percent in the second quarter, compared with the same period a year earlier. Russian authorities have projected that the country’s GDP will contract by 2.8 percent this year, before picking up again next year. But any turnaround will be contingent on a sustained recovery in oil prices.
nz / hg (dpa, AFP, Reuters)