29 December, AtoZForex.com, London – The ruble has hit its year to date lows amid decline in crude oil prices and speculations that an increase in end-of-year budget spending will pressure the Russian currency by pumping extra cash into companies and banks.
Russian RUB devaluation
Nevertheless, the strongest driver for the currency remains oil. Recent global economic developments, including announcements from global central banks, rising crude supply and falling demand from major oil consuming counties, such as China or even EU, have left crude oil prices to free-fall.
The RUB depreciated 2.1% to 72.154 per dollar this morning. The devaluation was the biggest among common EM peers resulting in the total decline of almost 19% this year.
Needless to say, RUB is not the only one affected by cheaper oil. The Central Bank of Azerbaijan has announce a 47% AZN devaluation last week in order to keep the currency rate stable, as the AZN does not float freely in international Forex market.
Further scope lower
Russia’s RUB is on track for the third annual decline after crude oil sank to the 11-year low and US and European governments kept sanctions for Russia’s role in the Ukraine crisis. Additionally, the Finance Ministry is expected to increases its budget spending and provide companies with extra ruble which could then by converted into USD and EUR.
“The wish to hedge potential risks from geopolitics and commodities may well push the ruble to 75,” Evgeny Koshelev, an analyst at Rosbank PJSC in Moscow, projected. “It will be interesting to see if there’s a reaction from the central bank, government and households to this weakening.”
As crude oil, together with natural gas, accounts for almost half Russia’s state revenue, it is in US interest to keep oil cheap. Russia's Central Bank estimated that if oil prices remain at their current level, the country's GDP could decrease 2% in 2016.
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