By ANDREY OSTROUKH
Jan. 23, 2014 10:55 a.m. ET
MOSCOW—The Russian ruble dropped to a five-year lowThursday and both officials and market players expect its depreciation to continue.
Versus the euro-dollar basket, the central bank's main barometer of the currency market, the ruble slipped to 39.75, a level last seen in February 2009, during a financial crisis that was accompanied by so-called controlled devaluation, when the central bank was intervening heavily to avoid a rapid drop in the ruble rate.
The currency also eased below the psychologically important level of 34 rubles versus the dollar Thursday, reaching its weakest since mid-2012. Against the euro, it breached the threshold of 46 rubles, weakening to a five-year low of 46.64. The ruble has shed more than 3% versus the basket so far this year after weakening by nearly 10% in 2013.
The ruble came under pressure in the middle of last year amid expectations that the U.S. Federal Reserve would taper its stimulus efforts, while slowing economic growth and heavy capital flight hit the currency domestically. Seasonally higher gas exports and the Winter Olympics were widely expected to help the ruble to recover early this year but that hasn't materialized yet.
Underlying economic conditions worsened in Russia over 2013. As investment activity evaporated, growth slowed to a postcrisis low of 1.3% in 2013, in contrast to President Vladimir Putin's ambitious call for annual growth of 5%.
Better-than-expected industrial-output data, reported Thursday, hasn't helped to halt the ruble's depreciation.
Capital flight also weighed on the currency. Russia lost a net sum of $63 billion last year even as the current-account surplus—money from trade, money transactions and investment revenues—more than halved.
Economy Ministry Alexei Ulyukayev said Thursday that the ruble now has more chance to ease than strengthen because of the deteriorating current-account surplus.
Mr. Ulyukayev said that the ruble's slide was a result of the global strengthening of reserve currencies, such as the dollar and the euro, and its dynamics were similar to those of the currencies of Brazil, South Africa and Korea.
"The ruble is trading in line with other currencies of emerging and commodity markets but the situation is close to panic," said Nikolay Frolov, a dealer at Moscow-based Promsvyazbank.
The central bank continues to intervene daily, but does so to a much lesser degree, and plans to trim its interventions further before allowing the ruble to float freely in 2015. Critics say this carries the risk of devaluation, but the central bank has repeatedly said such a step would only fuel ruble volatility.
The banking sector could withstand a ruble-rate fluctuation of up to 30%, the central bank's first deputy chairwoman, Ksenia Yudayeva, said in an interview with The Wall Street Journal last week. ING Bank analysts said this comment was perceived as a signal that the central bank expects ruble devaluation, which has added to pressure on the currency.
The ruble usually firms in the beginning of each year as Russia enjoys higher revenues from gas exports thanks to the heating season. The Winter Olympics in a southern resort town of Sochi in February were also expected to support the ruble, with the central bank saying the Games should help the balance of payments.
This may still be the case once global perceptions of emerging-market risks improve.
Otkritie Capital said the currency is undervalued but that the "downside risks for the ruble at its current levels are limited."
Volatility is set to stay strong but chances that the ruble rebounds to 33 to the dollar and even beyond are very high, said Dmitry Savchenko, chief analyst at Nordea Bank in Moscow.
Jan. 23, 2014 10:55 a.m. ET
MOSCOW—The Russian ruble dropped to a five-year lowThursday and both officials and market players expect its depreciation to continue.
Versus the euro-dollar basket, the central bank's main barometer of the currency market, the ruble slipped to 39.75, a level last seen in February 2009, during a financial crisis that was accompanied by so-called controlled devaluation, when the central bank was intervening heavily to avoid a rapid drop in the ruble rate.
The currency also eased below the psychologically important level of 34 rubles versus the dollar Thursday, reaching its weakest since mid-2012. Against the euro, it breached the threshold of 46 rubles, weakening to a five-year low of 46.64. The ruble has shed more than 3% versus the basket so far this year after weakening by nearly 10% in 2013.
The ruble came under pressure in the middle of last year amid expectations that the U.S. Federal Reserve would taper its stimulus efforts, while slowing economic growth and heavy capital flight hit the currency domestically. Seasonally higher gas exports and the Winter Olympics were widely expected to help the ruble to recover early this year but that hasn't materialized yet.
Underlying economic conditions worsened in Russia over 2013. As investment activity evaporated, growth slowed to a postcrisis low of 1.3% in 2013, in contrast to President Vladimir Putin's ambitious call for annual growth of 5%.
Better-than-expected industrial-output data, reported Thursday, hasn't helped to halt the ruble's depreciation.
Capital flight also weighed on the currency. Russia lost a net sum of $63 billion last year even as the current-account surplus—money from trade, money transactions and investment revenues—more than halved.
Economy Ministry Alexei Ulyukayev said Thursday that the ruble now has more chance to ease than strengthen because of the deteriorating current-account surplus.
Mr. Ulyukayev said that the ruble's slide was a result of the global strengthening of reserve currencies, such as the dollar and the euro, and its dynamics were similar to those of the currencies of Brazil, South Africa and Korea.
"The ruble is trading in line with other currencies of emerging and commodity markets but the situation is close to panic," said Nikolay Frolov, a dealer at Moscow-based Promsvyazbank.
The central bank continues to intervene daily, but does so to a much lesser degree, and plans to trim its interventions further before allowing the ruble to float freely in 2015. Critics say this carries the risk of devaluation, but the central bank has repeatedly said such a step would only fuel ruble volatility.
The banking sector could withstand a ruble-rate fluctuation of up to 30%, the central bank's first deputy chairwoman, Ksenia Yudayeva, said in an interview with The Wall Street Journal last week. ING Bank analysts said this comment was perceived as a signal that the central bank expects ruble devaluation, which has added to pressure on the currency.
The ruble usually firms in the beginning of each year as Russia enjoys higher revenues from gas exports thanks to the heating season. The Winter Olympics in a southern resort town of Sochi in February were also expected to support the ruble, with the central bank saying the Games should help the balance of payments.
This may still be the case once global perceptions of emerging-market risks improve.
Otkritie Capital said the currency is undervalued but that the "downside risks for the ruble at its current levels are limited."
Volatility is set to stay strong but chances that the ruble rebounds to 33 to the dollar and even beyond are very high, said Dmitry Savchenko, chief analyst at Nordea Bank in Moscow.