Ruble Set for Largest Monthly Drop

The ruble is set for its biggest monthly decline against the dollar-euro basket since its introduction in 2005 as rising tensions with the U.S. and European Union prompt investors to reduce holdings of Russian assets., Bloomberg 8/28/2008 6:19:09 AM

The currency is poised to lose 0.7 percent versus the basket this week after Russia reignited concern sparked by its five-day conflict with neighboring Georgia by recognizing the independence of two of the former Soviet republic's separatist regions on Aug. 26. Russia's dollar-denominated RTS Index is near its lowest level in almost two years and the benchmark 30-year government bond slipped for a third day today.

The managed currency was at 24.5675 per dollar by 1:26 p.m. in Moscow, from 24.6125 yesterday, when it gained 0.2 percent. The ruble was at 36.3379 per euro, from 36.2475.

Bank Rossii, Russia's central bank, keeps the ruble within a trading band against the basket to limit the impact of its fluctuations on the competitiveness of local exports.

As much as $25 billion in capital has flowed out of Russia since the start of the Georgia crisis, according to BNP Paribas SA, France's largest bank, in client note e-mailed today.

Russian President Dmitry Medvedev is proposing expanding the six-member Shanghai Cooperation Organization, which includes China, to counter NATO and the west, he said today at a meeting of the alliance in Tajikistan. He is seeking support for his endorsement of the independence of South Ossetia and Abkhazia, a move condemned by the U.S. and some EU states.

A strengthening currency reduces prices on imported goods, helping to curb inflation, which was at 14.7 percent in July, compared with the government's 11.8 percent target. Each 1 percentage point increase in the ruble to the basket reduces inflation by 0.3 percentage point, according to the central bank's own calculations.

Ruble Set for Largest Monthly Drop