(MENAFN- AFP) The Russian ruble tumbled 9.5 percent Monday to new record lows as falling crude prices pulled the rug out from under the currency of the oil exporting nation, with analysts saying the Kremlin needs to act to stop the free fall.
The plunge in the ruble came as the central bank warned the low oil price could trigger a contraction of nearly 5 percent next year and tensions surged with the United States over Ukraine.
The ruble broke through the level of 64 to the dollar and 78 to the euro for the first time even though the Bank of Russia apparently intervened Monday and has already spent about $6 billion so far this month to slow the currency's slide.
Russian news agencies said the ruble briefly jumped from 61 back to 60 on the dollar at around 1300 GMT, possibly due to the latest central bank intervention, but it did not stop a further slump.
Having lost over 49 percent of its value against the dollar this year, the ruble's slide is now worse than the 48 percent of the hryvnia in Ukraine, which is fighting a war and is on the brink of bankruptcy.
Russia's support of rebels in eastern Ukraine and its annexation of Crimea brought on Western sanctions that gave the ruble its first knock earlier this year.
Geopolitical tensions have stepped up in recent days following votes by US lawmakers approving more sanctions against Russia and the delivery of up to $350 million (280 million euros) worth of US military hardware to Kiev.
However the heart of the problem is plunging oil prices.
Half of Russia's revenues come from oil and gas, and the drop in the price of crude oil by half in the past six months has dealt a body blow to the country's finances and Russian's confidence in the ruble.
- Ruble in 'free fall' -
The ruble's fall is "driven by sentiment and fear," said Chris Weafer, who runs Macro Advisory consultancy.
"The ruble is now in free fall based on this fear factor," he said. "It could go just anywhere at this point."
Weafer said "the normal rules of economics don't apply" and that "the government has to find a way to stop this decline and restore confidence."
Economist Maxim Buyev wrote in the Vedomosti daily that "during a crisis like the one Russia is experiencing now, only changing expectations can lead to stabilisation."
He said "the government must offer a clear plan of reforms" to restore confidence in the currency.
Neil Shearing, chief emerging markets economist at London-based Capital Economics, said the ruble's continuing slide has led to "a growing sense that the currency crisis is spiralling out of control".
He said it was also increasing speculation that government could undertake stricter measures like capital controls.
"In the absence of an improvement in relations with the West and a lifting of the economic and financial sanctions on Russia, the appeal of capital controls and external debt default will grow," he said.
The central bank made interventions to support the ruble every day last week, and on Thursday decided to hike its key rate by one percentage point to 10.5 percent.
Bank of Russia chief Elvira Nabiullina said last week that the bank is prepared to spend up to $85 billion over the next year to prop up the ruble if necessary.
- Shrinking economy -
The central bank on Monday provided the latest grim outlook for the Russian economy, predicting in a "stress scenario" written in its quarterly report on monetary policy a contraction of 4.5-4.8 percent next year if oil prices remain at $60.
The government's 2015 budget is balanced on the assumption of selling oil at $95 per barrel, meaning the government's finances will be strained if there is not a quick rebound in crude prices.
Vedomsti reported Monday that the government plans to cut budget spending by 10 percent in 2015. The cuts would impact transportation programs as well as spending on space, aviation and development of the Far East, the report said.
The central bank said Monday inflation will peak at 11.5 percent in the first quarter of 2015 before going down, adding that it will go back to the target rate of four percent only by the end of 2017.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.