MOSCOW (AFP) — The Russian ruble tumbled to a four-year low Monday amid a crash in oil prices as authorities assured the public the country has enough foreign currencies to withstand the blow.
The ruble fell 9% to trade at 75 to the U.S. dollar, a rate last seen in early 2016.
Shares in Russian companies including oil giant Rosneft and Sberbank lender also plunged in London. The Moscow Stock Exchange was closed Monday for a public holiday.
The Russian Central Bank and the finance ministry on Monday announced measures aimed at stabilizing the ruble to ensure financial stability.
Russians have been chafing under multiple rounds of Western sanctions since Moscow annexed Crimea from Ukraine in 2014 and tumbling oil prices may deal a new blow to the country’s economy and President Vladimir Putin’s already flagging approval ratings.
Saudi Arabia launched an all-out oil price war on Sunday with the biggest cut in its prices in the past 20 years, after OPEC and Moscow failed to clinch a deal to reduce output.
A meeting of producers on Friday was expected to agree to deeper cuts to counter the impact of the coronavirus outbreak, but Russia refused to tighten supply.
In response, Riyadh slashed its price for April delivery by $4-$6 a barrel to Asia and $7 to the United States.
On Monday, Russia’s central bank said it was halting foreign currency purchases for the next 30 days.
“This decision has been taken to increase the predictability of actions of monetary authorities under the conditions of significant changes on global oil markets,” it said.
The central bank said it would continue monitoring the situation and was ready to use “additional instruments in order to maintain financial stability”.
The finance ministry said it would be selling foreign currencies in the open market if the oil price remains below $42 per barrel so as to have “a stabilizing effect on the national currency exchange rate.”
The ministry said Russia has enough reserves to withstand low oil prices.
In early deals, London’s benchmark Brent oil contract plunged by 20.5% to $35.98 per barrel while New York’s West Texas Intermediate crude stood at $31.69, down 23.3%.
As of March 1, the National Wealth Fund, the country’s sovereign wealth fund, had assets worth $150 billion, or 9.2% of gross domestic product, the ministry said.
That will be enough to last six to 10 years if oil prices fall to $25-30, it said.
Analysts say the collapse of Moscow’s deal with Saudi Arabia was a major coup for Igor Sechin, the powerful head of Rosneft and one of Putin’s most loyal lieutenants, who has long said the agreement was hurting Russia’s interests and boosting U.S. shale companies.
Analysts including economist Vladislav Inozemtsev warned, however, that low oil prices may lead to high inflation, a consumer lending crisis, a fall in real disposable incomes and a budget deficit.
“This is an economic war which the Kremlin considered to be a ‘walk in the park’ but which could end up being a catastrophic defeat,” Inozemtsev, director of the Center for Post-Industrial Studies in Moscow, wrote in a blog post.
Russia has entered a politically sensitive period after Putin in January proposed an overhaul of the constitution, the first changes to the basic law since 1993.
A vote on the controversial reforms that Putin said should ensure the country’s future for decades is set for April 22, followed by parliamentary elections next year.
Critics say the changes will allow Putin to remain in charge.
Analysts say the weak ruble may jeopardize Putin’s promise to invest tens of trillions of rubles in Russia’s dilapidated infrastructure and other sectors over the next few years in a bid to kickstart anemic economic growth.
Putin has earmarked 25.7 trillion rubles for investment in virtually all sectors, including education, roads, and health from now until the end of his fourth Kremlin term in 2024.
Chris Weafer, the founding partner of the Macro-Advisory consultancy in Moscow, said Russia was in a better position to endure an oil price war than it was in 2016, compared Saudi Arabia today.
“Moscow is unlikely to blink first, certainly not for another three to six months,” he said.
© Agence France-Presse