Russian central bank meets with bank heads as rouble plunges

A board lists foreign currency rates against the Russian rouble in Moscow, on Jan 20, 2016. PHOTO: AFP

MOSCOW (AFP) - The Russian rouble slumped to an all-time low against the dollar on Thursday, prompting the central bank to convene an evening meeting as chief Elvira Nabiullina cancelled her trip to the World Economic Forum in Davos.

The rouble - which has already been battered over the past 18 months by low energy prices and Western sanctions over Ukraine - tumbled briefly by over four percent to 85.99 to the dollar before recovering to around 82.4.

Russia's national currency also fell against the euro, dropping to around 93.7 roubles per euro before firming back up to 89.2.

The Kremlin insisted that the currency's plunge was "not a collapse" and that authorities would be able to stop the slide.

"The exchange rate is really changing, the rate is volatile, but it is far from being a collapse," spokesman Dmitry Peskov was quoted as saying by Russian agency Interfax.

"There is no basis to suggest the central bank does not have plans drawn up to avoid a collapse."

Nonetheless, the record plunge saw Russian Central Bank chief Elvira Nabiullina annul her trip to the annual gathering of the rich and famous in the Swiss ski resort of Davos, where she was set to speak on Friday.

The central bank also summoned bank chiefs for a unexpected meeting late on Thursday.

"The Bank of Russia held a working meeting with the leadership of banking associations and several banks regarding the conditions and prospects of banks' crediting of the economy in 2016," the central bank said in a statement.

Russia's recession-hit economy relies on oil and gas for over half of its budget revenues and the authorities are coming under increasing pressure to act to stave off a further weakening of the currency.

With oil hitting 12-year lows, the rouble on Wednesday slipped past its previous weakest point of 80.1 roubles to the dollar that it crashed to during a dramatic slump in December 2014.

The Russian currency has so far this year lost about 12 per cent of its value against the dollar, meaning that a recession officials had been claiming was essentially over looks set to last longer.

Russia's central bank has so far appeared to shrug off the latest rouble slump and insisted it was not preparing to repeat the major interest rate hike it made in late 2014 to prop up the currency.

Analysts said that while the fall was down to factors mostly beyond Moscow's control, the authorities would have to react in some way to reassure the markets.

"It is understood that this is happening against a background of an international collapse with local factors being a part of it, but the lack of a reaction from the central bank and authorities raises some questions," Anton Tabakh from Moscow's Higher School of Economics told AFP.

But others argued that with Russia's currency just following the oil market, there was little that the authorities could, or should, do.

"Rouble exchange rate depreciation is now purely a function of the collapse of oil prices, and thus represents an adjustment of the fair value of the currency and does not require any (central bank) presence on the market," Alfa Bank said in a note.

The government has already admitted that cheap oil prices will push it to slash spending as it struggles to keep the deficit to under 3 per cent of gross domestic product (GDP).

So far there has only been muted public criticism of the authorities under President Vladimir Putin, who tightly control the state media, and the strongman's ratings remain close to an all-time high.

But with legislative elections coming up later this year, the government will likely face a difficult time as it tries to keep a lid on public discontent and balance its books.

The International Monetary Fund on Tuesday downgraded its forecast for Russia, predicting that the economy would contract by 1 per cent this year.

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