The ruble today hit its lowest exchange rate against the euro since the creation of the European single currency in 1999.
Russia’s currency crossed 54 rubles to the euro in early trading, the first time it has ever crossed that level, on the back of months of weakening against major currencies.
Today’s news comes after the currency has tracked the collapse in the oil price. Brent crude has fallen from a June high of $US115 a barrel to around $US86 a barrel Tuesday.
The falls have been particularly severe on Russia which relies on tax revenues from oil exports to fund the government budget. The Kremlin can only meet its current spending commitments with oil at around $US90 a barrel. Anything below that will force the government either to increase borrowing or cut back on spending plans.
Such is the level of concern within the country that the Finance Minister described a draft budget put before Russia’s parliament Friday, which assumes an average oil price of around $US100 a barrel between 2015-2018, as being based on an “alternative economic reality”. The Finance Ministry is now looking to cut as much as 10% of the budget in order to compensate for lower than expected oil revenues over that period.
These concerns have driven foreign capital out of the country, with the Russian central bank reporting $US85 billion of capital outflows in the first 9 months of 2014. This has put huge pressure on the ruble, pushing down its value against other currencies and forcing the central bank to spend over $US15 billion of foreign exchange reserves in October alone in an attempt to halt the pace of the declines.