Ruble follows oil's downward spiral
The ongoing decline in global oil prices is causing fresh concerns about Russia's economy.
The ruble fell to a new low against the dollar Tuesday, falling 2.3 percent to 63 versus the dollar. The currency has tumbled 15 percent since the start of the year.
Oil prices have fallen by more than half since June, with benchmark U.S. crude dipping to $45.46 a barrel in New York, while Brent, the international standard, slipped to $47.22.
The ruble's value fell sharply in December, causing nervous consumers to stock up on goods and stoking fears of bank runs. Since then, Russian government officials have sought to restore confidence in the currency by selling foreign confidence and offering loans to domestic banks.
Another ratings firm, Fitch, cut Russia's debt to one notch above investment grade on Friday, and Moody's lowered its outlook last month. Reducing a country's debt rating can raise how much it costs to borrow money.
The plunge in global crude prices has caused havoc for the Russian economy, where the oil and gas sector accounts for more than half of the country's revenue, and is magnifying the impact of pain of international sanctions related to its actions in Ukraine. Officials in Moscow are expecting Standard & Poors to lower its rating on the country's debt to "junk" status.
Charles Movit, an economist with research firm IHS, notes that the sanctions against Russia for its annexation last year of Crimea has already cut the country off from external borrowing.
"[The] Kremlin's dilemma on the ruble is that while a weaker ruble helps the budget and protects Russia's sizable reserves funds, it also stokes inflation and makes life really difficult for Russian companies with dollar-debt," Alexander Kliment, Eurasia Group's director of emerging markets research, added in an email. "If the ruble starts to get really clobbered again, they might start to experiment with capital controls."
Restricting the flow of money into and out of Russia would likely be a last resort. Kliment notes that President Vladimir Putin is eager to retain the support of the wealthiest Russians, who would be most affected by capital control.
"At a certain level I think the Kremlin really is hoping they can ride this out until oil starts to recover a bit," he said.
In the short term, Russia is partly insulated from deeper turmoil by an ample financial cushion. The country's foreign currency reserves are about $350 billion, and as of the end of 2014 its total debt stood at a modest $728.9 billion. The country's public debt is about 12 percent of GDP.