The Russian rouble hit fresh lows versus a euro-dollar basket on Monday, coming within half a percent of the trading boundary where a showdown is expected between speculators and the central bank, according to Reuters. Russia has spent some $200 billion, or a third of its reserves, keeping currency depreciation gradual in the face of low oil prices and the worst economic outlook in a decade. The weaker rouble and the economic slowdown, which has seen hundreds of thousands lose jobs or face salary cuts, galvanised thousands of Russian opposition supporters to march through key cities on Saturday. The central bank sought to set a floor under the rouble, from Jan. 24 setting its trading boundaries at 26 to 41 versus a euro-dollar basket, and vowing to defend them with market interventions and interest rates. Last week it started to reduce the amount of funds on offer at its liquidity injections, and from Monday raised rates on a number of Lombard and repo operations by 100 basis points. But pressure on the rouble remains. On Monday it weakened by nearly 50 kopecks to a fresh trough of 40.80 to the basket, less than half a percent from the 41 boundary mark. "We are going to test the 41 level. It is completely natural to see how much the central bank is ready to spend (on defending that level), said Natalya Orlova, chief economist at Alfa Bank. The rouble also hit fresh historic lows of 46.29 versus the euro and 36.35 to the dollar. The central bank has said 36 roubles per dollar corresponds to its 41 per basket boundary if the euro is $1.30. But the euro had since weakened to $1.27, altering the parameters. Dealers said the central bank did not intervene on Monday. In a statement on Monday, the central bank said it had revoked licences of two mid-sized banks, MZB and Moskovsky Kapital, saying their capital adequacy ratio fell below 2 percent and they had failed to meet creditors' demands. Russia's 1,000-plus banking system has been hit badly by the financial crisis, which has sucked away liquidity and demolished dozens of banks, including four from the top 50. "The state first said the dollar won't be worth more than 31, then more than 36. Of course, confidence is undermined," said Yelena Andreyeva, a project manager at an IT firm. Like many, she borrowed in dollars to take advantage of the lower interest rates, and is now cutting back on food spending and delaying bigger purchases to be able to pay back the money. Others have the rent pegged to dollars or euros, with landlords' mistrust of the rouble dating back to the 1998 crisis when the currency lost over two-thirds of its value. Although Saturday drew relatively few protesters for a country of 140 million, the action was of unusual scale as the political leadership has enjoyed widespread support. "We expect popular unrest to become an increasingly important problem ... The general population is yet to realise full effects of economic crisis, falling wages and rising unemployment," said Vladimir Osakovsky, analyst at UniCredit. That "might test true political support to the ruling elite, and challenge political stability as one of the key pillars of the Russian investment climate over the past several years." The number of Russians claiming unemployment benefit rose 6 percent in the week to Jan. 28, to 1.6 million people, the health ministry said on Monday. The actual number of unemployed is much higher, at 5.8 million by end-December, data shows. Economic growth slowed to a six-year low of 5.6 percent in 2008, the Economy Ministry estimated. A contraction is expected in 2009. For now Russians still find humour in the weakening rouble. Internet commentaries are abuzz with historical perspective. Many quote 19th century writer Mikhail Saltykov-Shchedrin that "it is not a tragedy when in exchange for a rouble you get half a rouble, the tragedy is when in exchange for a rouble you get a punch in the face". They also cite late popular singer Vladmir Vysotsky who sang "the rouble is not money but a piece of paper and it is a sin to save". The handling of the crisis is seen key for Prime Minister Vladimir Putin if he wants to run for president again. Analysts said the central bank had effectively staked its reputation on its ability to hold the 41 roubles/basket level. "The central bank has to defend that level. Otherwise, it would lose all remaining credibility in the market," Commerzbank said in a client note. A Reuters poll shows the rouble ending the year at 41.45 to the basket, just slightly beyond the trading band. But politicians need to balance the need to support the currency and to preserve some reserves to help the economy, plug an expected budget deficit and protect credit ratings.
