Black Monday in Russia as ruble tanks

A bank in Murmansk flashes exchange updates as the ruble takes the steepest one-day tumble since 1998.

It’s about to get much more expensive to live in Arctic Russia. Bankers and economists are predicting a black day on the Russian market saying the ruble is set to take another tumble - the biggest single day fall since 1998.

The Russian ruble is predicted to have its sharpest one-day crash in over 15 years according to early market readings for December 1st.

The announcement of Monday’s nosedive comes on the heels of a bad November for Russia. Crude and Brent oil prices have slid to the lowest levels since the 2008/2009 financial crisis and it’s taking a toll on the ruble.

Last week the ruble lost 15 per cent of its value against the dollar (USD). It opened at 52.72 rubles against the dollar Monday morning. By noon it had dropped almost another four per cent to 52.45 against the dollar.

Across the border in Norway the krone is also taking a beating. It’s at a five-year low against the dollar – 6.992.

While most oil-producing countries are feeling a pinch it’s Russia, with its 2015 budget pegged to oil that would stay in the $100 USD per barrel range, that is getting the most attention. On Monday deputy chairman for the Central Bank, Ksenia Yudayeva, assured Russian news agencies there was a new economic forecast made to appreciate oil sold as low as $60 per barrel.

Global oil prices per barrel from 2005 to 2014.

Plummeting oil prices coupled with western sanctions have caused the Russian economy to drop roughly 25 per cent since early summer. The ruble has lost 42 per cent of its value since January. On November 24th, Finance Minister Anton Siluanov predicted the combined pressure from sanctions and depressed oil prices will cost the Russian economy $140 billion this year. The ruble is the world’s worst performing currency in 2014 so far.

Currently, oil and gas make up about two thirds of Russia’s exports and around half of federal budget revenues. A massive Kremlin-led campaign has seen oil and gas companies courted and enticed to the Kola Peninsula and other oil hot spots in the Arctic and the industry has been turned into the lynchpin of the Russian economy. Then there is the recent uptick in economic partnership with China that involves several high profile and, theoretically, high profit energy deals – many to do with oil and gas.

But last week’s shock decision by OPEC – a coalition of oil companies hailing from Iran to Venezuela to Saudia Arabia – not to curb oil production to match prices has all but ensured cheap oil will be around for a while and the free-fall will continue.

However, many Russians have been preparing for the bottom to drop out of the ruble since Ukraine started heating up.

“It’s not so bad now,” said one woman in Murmansk in early November. “You can’t tell yet the sanctions are having an effect [on prices]…but it’s coming.”

“We will see a big change in the new year,” agreed another young entrepreneur, also from Murmansk.

The ruble has had a jumpy year in 2014, but now a continuous decline is clear.

Already there has been a noticeable decrease in border traffic at the Kirkenes crossing. It’s no longer a bargain for Russians from Nikel and Murmansk to shop for food and clothes in Norway.

With the ruble’s continuing slide, many economists and bankers have voiced their surprise and concern at the largely absent Central Bank intervention.

“Logically one only has to conclude that the weaker ruble is part of the Russian authorities’ policy responses to lower oil prices and sanctions (over Ukraine) as it helps prop up growth and helps keep the budget on track by boosting the ruble value of dollar oil revenues,” says Standard Bank analyst Tim Ash.

The Kremlin, so far, appears largely unconcerned with the drop and has not, as in the past, bought up rubles to support the exchange rate.

The last time the ruble crashed this much was 1998 and, as a result, Russia defaulted on its domestic debt.

Experts are predicting the ruble will have lost five per cent against the dollar when the markets close on Monday.