Russia's economy chief cheers ruble's historic slide

Dmitry Zaks
Members of a social network group "I Really Like Putin" perform in front or a two-meter Russian Ruble coin  in Moscow on August 18,  2011, during their action in support of Russia's currency
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Members of a social network group "I Really Like Putin" perform in front or a two-meter Russian Ruble coin in Moscow on August 18, 2011, during their action in support of Russia's currency

Russia's economy minister on Monday called the ruble's rapid slide to historic lows a boon for exporters which should help industry and promote stalling growth.

The ruble began trending lower in late December and has lost more than two percent of its value against both the dollar and euro in the last three trading sessions alone.

The euro shot up by about one percent to 47.63 rubles in afternoon trading on the Moscow Exchange -- substantially stronger than the 42.25 ruble record it had set in the worst months of Russia's 2008-2009 financial crisis.

The dollar was up 0.9 percent to 34.79 rubles. The level was also its highest against the Russian currency since the end of 2008.

Moscow's VTB Capital investment house summed up the trading floor sentiment by calling the ruble's performance "one of capitulation".

But Economy Minister Alexei Ulyukayev sounded an upbeat note about the decline that is likely only to spur ruble selling.

"I am not a proponent of stimulating the economy through an artificial weakening of the ruble," Ulyukayev told Moscow's Prime business news agency.

"But since what we have now is not an artificial but a natural weakening ... then why not enjoy its positive effects?" he asked.

"This will help improve the competitiveness of a range of industries," the economy minister stressed.

Russia's industrial production was flat last year amid falling investment and reduced demand -- both domestic and foreign -- for such factory staples as steel.

And economic growth of about 1.4 percent delivered a shock to the Russian government which had initially projected 2013 expansion to come in at 5.0 percent and then accelerate in following years.

Traders attributed the ruble's latest drop to highly negative investor sentiment about emerging markets and diminishing Central Bank support for Russia's beleaguered currency.

Concern about a slowdown in Chinese manufacturing sent the value of emerging market currencies plummeting at the end last week.

Moscow meanwhile intends to introduce a fully floating exchange rate starting next year while shifting its focus to the fight against persistently high inflation -- measures roundly applauded by economists but feared by consumers.

The Central Bank eliminated some of its support measures for the ruble earlier this month and no longer spends $60 million (44 million euros) a day on "targeted" interventionist measures.

It still makes between $200 million and $400 million a day in ruble purchases when the Russian currency slips outside the bounds of a predetermined trading band.

But the Central Bank reserves the right to shift that trading corridor to a higher exchange rate as pressure on the ruble mounts -- a step it repeated for the third successive business day on Monday.

Ruble underperforms emerging markets

VTB Capital noted that the ruble had underperformed emerging market currencies -- themselves under their strongest pressure for six months -- by about 2.5 percent since the start of the year.

Analysts point both to domestic problems such as a short-term annual growth outlook of no more than 2.5 percent and to foreign factors such as the unresolved political crisis in neighbouring Ukraine.

Moscow's BCS Premier bank analyst Anton Shabanov added that economic data "from leading eurozone countries has recently been improving and is providing real support for the single European currency."

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