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Lower global oil prices have weakened the currency, says Vice President Aleksey Zabotkin

The recent weakening of the Russian ruble is attributable to the fall in world oil prices, according to Aleksey Zabotkin, vice president of the Central Bank of Russia, quoted by the business daily RBK on Monday.

Volatility in the Russian forex market has risen sharply since early December, with the ruble falling to an over-eight-month low against the US dollar last week. The Russian currency began to rally on Friday, however, and started the week at around 68.2 rubles against the dollar and 72.4 against the euro. Trade data shows that, despite the decline, the ruble is still up on the year, trading 10% higher than in early January, before the start of the Russian military operation in Ukraine and Western sanctions who followed.

“There is a deterioration in external conditions, a drop in oil prices. This is reason enough for the exchange rate to weaken somewhat,” Zabotkin explained. He pointed out, however, that the rate is still “fluctuating within the range seen since about late May this year.”

According to the Vice President, the observed weakening of the ruble will contribute to a rise in prices. He noted that every 10% movement in the exchange rate typically adds about 0.5% to 0.6% to inflation. “But at the same time, it should be mentioned that this 0.5% to 0.6% is not achieved instantly, but is spread over time over six to twelve months”, he said.

“The disinflationary contribution of the strengthening of the ruble, which occurred in the second half of spring and summer, has finally been exhausted by now”, Zabotkin added. The regulator does not plan to tighten restrictions on the capital account, he stressed.

While a weakening of the Russian currency until the end of 2022 had been predicted by many analysts, some experts believe that it will continue to decline in the coming months.

The projections come as the benchmark Brent oil price has fallen from nearly $90 a barrel to around $84 since early December. The average price of Russian oil from the Urals, which after the introduction of a series of sanctions is being sold at a discount, stood at $57.49 per barrel in December, according to estimates by the Ministry of Finance. A month earlier, the price was $71.1 per barrel.

The $60-a-barrel cap on Russian maritime crude, designed by the G7 and the EU, went into effect on Dec. 5. The measure, coupled with a ban on European imports of Russian maritime flows, aims to reduce Kremlin revenue. Russian oil shipments traded above the threshold cannot access some key services from Western companies, including insurance.

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