Page last updated at 15:40 GMT, Monday, 29 December 2008

Russian rouble slides to new low

Rouble notes
Russia has been devaluing its currency gradually

The Russian rouble has hit a low after its central bank allowed the currency to devalue for the twelfth time - including nine falls this month.

It fell to 41.6 against the euro - an all time low - and to 29.3 against the dollar, the lowest level since 2005.

The currency has lost more than 20% of its value against the dollar - largely due to the slumping price of oil on which Russia's economy heavily relies.

The Kremlin has been using reserves to try and support the currency.

However concern that Russia is pumping too much cash into supporting the rouble prompted ratings agency Standard and Poor's to cut the country's credit rating earlier this month for the first time in nine years.

Borrowing plans

The rouble has also touched a new low of 34.8 roubles against the basket of euros and dollars which is its official measure within the country.

Russia's central bank, which sets the official exchange rates, does not normally allow the currency to lose more than 1% percent of its value in one day against the basket of currencies.

But it has gradually been devaluing the rouble by allowing deeper falls, with it sliding 1.5% on Monday.

Oil revenues have been the main driver of the boom enjoyed by the Russian economy in recent years.

But the sharp declines in the price of crude oil means Russia is facing economic challenges.

Its budget has been calculated on the basis if it getting at least $70 a barrel for its Urals crude - the country's main export blend. It is currently worth about $32 a barrel.

Last week the economic adviser to President Dmitry Medvedev said that the country would probably draw on further reserves and borrow from abroad to bridge the shortfall.

The central bank's first deputy chairman Alexei Ulyukayev said last week that it had opted to allow the rouble to devalue gradually instead of allowing a single, much larger devaluation.

The worsening economic outlook and the fall in the price of oil has left the government with little option.

Further falls

Russia's central bank has spent more than $100bn (68bn) defending its currency since the summer.

Despite the fall in oil revenues, Russia possesses the world's third largest reserves of gold and foreign exchange reserves.

And the central bank is prepared to continue to defend the rouble in order to avoid a repeat of the 1998 financial crisis, when Russians rushed to withdraw their savings as the currency plummeted.

The Kremlin has warned that the global economic slowdown is continuing to take its toll - predicting that the number of people registered as unemployed would rise to about 2.2 million by the end of 2009, from the current level of 1.5 million.

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