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Russian Ruble Declines with Price of Oil

Having already fallen 12% in 2008, the Russian Ruble is well on is way to fulfilling analysts' predictions that it will fall 30% before stabilizing against the US Dollar. While the credit crisis has not been kind to Russia, the Ruble is suffering more from a collapse in the price of oil, which recently slipped below $50 a barrel. For reference, the government needs the price of oil to stay above $70 in order to balance its budget. Now, the country's current account surplus is eroding almost as quickly as its foreign exchange reserves, which it is deploying in a vain effort to forestall the decline in the Ruble. The response of the Central Bank has been to widen the band within which the currency is permitted to fluctuate; in practice, this is tantamount to defeat, and is sure to trigger a further decline. Bloomberg News reports:

"The central bank is letting it fall because of oil, reserves depletion, all of that," said an emerging-markets currency strategist. "We can probably expect to see more of this."

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