Rouble hit by Libyan conflict

Aug 23rd, 2011 | By | Category: Rouble News

The rouble has weakened against the US dollar following the conflict in Libya between Muammar Gaddafi and the rebel forces.

At the close of play in Moscow yesterday (22 August, 19:00 local time), the rouble has lost 0.2 per cent to the dollar after gains of 0.7 per cent in the preceding week. However, against the euro it remained mostly unchanged.

Concerns regarding the oil markets have been held largely responsible for the rouble's decline against the dollar due to the strength of the Russian ties with the oil market. Carolin Hecht, an emerging markets currency strategist at Commerzbank AG in Frankfurt, told Bloomberg: “The unrest in Libya is putting additional pressure on market sentiment about the rouble, via its impact on oil prices.”

Gaddafi's grip on control in Libya has slipped significantly over the past few days as the rebels have forced him into hiding. As the unrest has built up, Libya's oil output has fallen significantly. The news agency noted that the country's output declined to 100,000 barrels a day last month, which is less than ten per cent of the 1.59 million barrels being pumped out by the nation in January before the uprising took hold.

However, the currency's flexibility and ability to absorb shocks in the markets may well serve as a “safety valve” for the Russian economy should the global markets deteriorate further. This is according to Roland Nash, chief investment strategist for Verno Capital.

Mr Nash told the Financial Times' subsection beyondbrics that the Russian government made the painful decision to allow the rouble to devalue slowly in response to the latest economic unrest, unlike in 2008 when they spent $200 billion in reserves defending the currency from collapse.

Analysts have suggested that this signals the positive evolution of the central bank's monetary policy. In fact, in the long run the decision to allow the rouble to take its own course is likely to be beneficial to the country's GDP.

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