Shift to dollar sees rouble plumb new low

The rouble hit historic lows against the dollar and euro on Thursday as Russia accelerated a controlled devaluation of the currency to adjust for the collapse in the oil price.

The rouble fell against the dollar to Rbs32.35, while the euro hit Rbs42.55 as the central bank widened the band that the rouble trades against a euro-dollar basket for the fourth time in five days.

But dealers estimated the central bank was still forced to spend about $7bn to support the currency, as speculation intensified that the government would be forced to devalue further.

"Everyone who is not absolutely lazy is shifting roubles into dollars," said one senior market participant, who declined to be named. "At the end of December there were still some who feared to do this, now everyone is at it."

The central bank spent a record $74bn on defending the currency in December. Russia has lost more than a quarter of its hard currency reserves since August to combat a run on the rouble which began after Russia's war with Georgia and accelerated as the oil price fell.

Vladimir Putin, the Russian prime minister, has insisted the government will not allow a sharp one-off devaluation, fearful of provoking a run on the banking system by resurrecting memories of the August 1998 devaluation when the population's savings were eradicated overnight. Instead the central bank has pursued a gradual depreciation, widening the rouble band 16 times since November 11.

Analysts said the government looked set to continue to pursue a faster pace of devaluation, but would control the decline in spite of mounting pressure for a one-off sharper devaluation, which would stem the drain on reserves and boost Russia's commodity-driven economy as it faces its worst outlook in a decade as revenues shrink.

Economists have criticised the step-by-step depreciation for fuelling further speculation against the rouble, increasing the pressure on reserves. "Anyone who has roubles is exchanging them for dollars," said Alexei Moisseev, an analyst at Renaissance Capital.

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