Russia, the ruble and oil interlocked as historic drop continues…


The Russian ruble plunged further Wednesday morning in early trade before firming up to currently post a slight 0.25% gain on the day. The battered currency was shrugging off data confirming that the Central Bank of Russia had resumed Forex market interventions on Monday and was also initially dragged lower by forecasts for recession next year.

The central bank had not intervened in the currency market since November 10th, the last day before it floated the ruble, although it says it can still intervene if financial stability is threatened. The Monday $700 million intervention figure was a relatively small amount compared with daily interventions that often topped $2 billion a day in October and only briefly supported the ruble.

“The real damage from the collapsing ruble and oil price is to investment and growth,” said Chris Weafer senior partner at Moscow-based Macro-Advisory said in a note to investors. He continued, “Russia is a non-investible country for all but the bravest of hedge fund investors right now and will remain in this category until both the ruble and oil stabilize at minimum.”

Leading indicator of oil prices?

Russian Finance Minister Anton Siluanov said the ruble is “oversold” and that at it’s current exchange rate would correlate to the oil price of $60 per barrel. The global price of brent oil is trading around $70.75 a barrel on Wednesday.

Check out the dramatic slides in both the USD/RUB and EUR/RUB exchange rates in the charts below: [Source: Bloomberg]

 

eurrub usdrub

 

The drop in oil prices and attack on the ruble is hurting ordinary Russians by driving up import prices causing price inflation and forcing Russians to delay large purchases. As evidence, car sales fell 10% in October, after a 20% drop in September, according to data (PDF) published by the Moscow-based Association of European Businesses (AEB) last month.  As such, Russia will earmark 10 billion rubles (150 million euros) in 2015 to extend an incentives plan for new vehicle purchases. “The decision was made to allocate 10 billion rubles next year to support demand,” Industry and Trade Minister Denis Manturov told journalists, adding an extra 2.9 billion rubles that were also earmarked for the program this year (2014).

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Russia, the ruble and oil interlocked as historic drop continues...

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