Russian Ruble Weakens Toward 70 Per Dollar as Oil Resumes Slide

  • Currency's fair value 70-75 per dollar, Sberbank CIB says
  • ING, Sberbank predict Bank of Russia will cut rates on Friday

The ruble reversed gains, approaching 70 per dollar for the first time since August, as the price of Brent crude fell below $40 a barrel.

Russia’s exchange rate declined 0.6 percent to 69.9140 per dollar by 4:49 p.m. in Moscow as Brent crude, used to price the nation’s main export blend, fell to as low as $39.88 a barrel. The ruble correlation with oil has receded this month, leading Sberbank CIB to say on Tuesday that the currency was "slightly overvalued" and should be trading as much as 6.8 percent weaker than current levels.

By failing to keep up with the drop in crude, the ruble is complicating the government’s efforts to generate enough revenue to fill its biggest budget shortfall in five years. The price of Brent in ruble terms fell to the lowest level since February 2009 on Monday, which may bolster the argument for Russian policy makers to resume interest-rate cuts as soon as Friday, according to ING’s Dmitry Polevoy.

"A rate cut by the Bank of Russia may help rectify this problem by weakening the ruble," said Polevoy, the chief economist for Russia and CIS at ING in Moscow.

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