Ruble Drops to Record-Low Close After Fed Liftoff as Crude Falls

  • Oil and gas account for half of Russia's budget revenue
  • Impact of future Fed moves blunted by outflows, Shvetsov says

The Russian ruble closed at a record low against the dollar as the first Federal Reserve interest-rate increase in almost 10 years and oil trading at a seven-year low damped investor demand for the world’s biggest energy exporter’s assets.

The currency dropped 1.1 percent to 71.1830 per dollar, the lowest since at least 1993. It is the second-worst second-worst performer in emerging markets over the past six months, slumping 25 percent. Brent crude retreated 0.9 percent on Thursday to the lowest price since December 2008. Oil and natural gas account for almost 50 percent of Russia’s budget revenue.

“OPEC keeps pumping oil like there’s no tomorrow and the decline in oil prices is affecting the ruble more than any other currency,” Win Thin, head of emerging-market strategy at New York-based Brown Brothers Harriman & Co., said by phone Thursday. “Part of this is the Fed hike and the general negative sentiment on emerging markets following the Fed hike.”

The ruble will probably weaken to as low as 80 per dollar in the first half of 2016, Thin said.

Most emerging-market currencies fell on Thursday because higher borrowing costs typically prompt investors to flee riskier securities. International sanctions linked to the Ukraine conflict and oil’s 60 percent slump since September have pushed Russia’s economy into recession and fueled a capital outflow. Oil is trading near levels last seen during the global financial crisis on signs a record surplus will worsen.

ETF Retreats

The yield on five-year government bonds declined four basis points to 10.18 percent, the lowest this week. The Micex Index rose for a third day, climbing 1.5 percent to 1,780.97. The Market Vectors Russia ETF, the biggest exchange-traded fund investing in the country’s stocks, declined 1 percent to $15.41, ending a three-day advance in New York.

Net capital outflow from January to November was $53 billion, less than half the amount in the same period last year, the central bank said Wednesday. Russia is more shielded from Fed interest-rate increases than other market because it has already lost “a lot” of capital, the Bank of Russia Deputy Governor Sergey Shvetsov said.

“A lot of capital has already left Russia,” Shvetsov said at a conference in Moscow. “In this respect we’re in a better position.”

Before it's here, it's on the Bloomberg Terminal.