Russian Federation is running a budget deficit of 3 percent of GDP this year, and the government is looking to cut 10 percent from the federal budget, which was drafted with oil prices of $50 a barrel in mind.
The Russian central bank said on Wednesday it wasn’t considering hiking interest rates to halt the slump in the value of the ruble as it did in December 2014, when it pushed its interest rate to 17 per cent in a dramatic midnight move.
The continued drop in oil prices, which are down more than 70% from their 2014 high, has hit global equity markets, hammering the energy and resource sectors and fueled increased safe haven demand.
The ruble dropped sharply as markets opened in Moscow and shortly after 2 p.m. local time was worth 80.3 against the US dollar. The national currency declined by 2 percent to 79.1 rubles to the dollar in Moscow, its lowest trading level since December 2014.
Nabiullina’s comments followed shortly after the rouble weakened to a new record low against the dollar on Wednesday, tracking a plunge in world oil prices.
But others are more concerned now that the ruble has dipped below the 2014 low.
The regulator next meets on monetary policy on January 29, and market expectations have recently shifted towards a “hold” decision.
Analysts said the rouble is likely to remain on the ropes.
The deep pessimism on Russian markets mirrored falls in Asian and European stocks, as well as declines in emerging-market currencies such as the Turkish lira (TRY=). ICE benchmark Brent oil March futures were traded below 28 dollars per barrel on Wednesday.
The official rate of the dollar rose Monday by 2.1 rubles.
Meanwhile, Igor Nikolayev, director of the FBK Grant Thornton Institute of Strategic Analysis, said the falling value of the Russian ruble was not a good sign for the country’s economy as it exacerbated financial risk, leading to lower investment.
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