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The ruble slid, eroding its biggest weekly rally in 16 years, in a signal that forcing Russian exporters to sell foreign currency may not be enough to shore up confidence as the economy verges on a recession.

The ruble weakened 2.5 percent to 53.90 a dollar by 7:29 p.m. in Moscow, ending a five-day rally. The currency has advanced 8.6 percent in its first weekly increase since the period ended Nov. 23, taking it out of step with oil prices that are trading near five-year lows and set for their fifth weekly retreat. Brent crude lost 0.3 percent to $60.07 a barrel today, bringing this month’s drop to 14 percent.

“As long as oil remains at these levels, the devaluation risk will persist,” Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow, said by e-mail. “The holiday of the rising ruble will end at the start of next year since there are no fundamental reasons for its strengthening.”

Today’s decline underscores the fragility of coordinated measures by Russia’s government and central bank that steered the ruble’s 49 percent rebound from a record-low 80.10 on Dec. 16. OAO Gazprom and four other state-controlled exporters were ordered to cut foreign-currency holdings by March 1 to levels no higher than they were on Oct. 1, while the central bank sought to make it easier for banks to access dollars and euros.

Highlighting the risks facing Russia as it contends with sanctions over the conflict in Ukraine and slumping oil, Standard & Poor’s said Dec. 23 there’s at least a 50 percent chance it will cut the sovereign’s credit rating to below investment grade within 90 days. The economy of the world’s largest energy exporter is set to shrink 1.4 percent next year, the average of 46 analyst estimates compiled by Bloomberg show.

Fundamental Range

The currency has fallen 39 percent this year, the most among 24 developing countries monitored by Bloomberg. That puts it on course for the worst year since 1998, when Russia defaulted on local debt. Brent, the oil grade traders use to price Russia’s main export blend, slumped 46 percent in 2014.

“We’re back to fundamentals,” Sergey Fishgoyt, the deputy head of foreign-exchange trading at Otkritie Bank in Moscow, said by e-mail. “The fundamental range for the ruble is now 58 to 68” to the dollar, he said.

The Micex Index (INDEXCF) of equities rose for a third day today, led by a 2.6 percent rally in OAO Lukoil. The yield on five-year government bonds declined 10 basis points to 15.32 percent, paring its rise since a surprise interest-rate decision on Dec. 16 to 100 basis points.

The Bank of Russia raised borrowing costs to 17 percent from 10.5 percent that day, triggering panic that sent the ruble plunging as much as 20 percent against the dollar.

Rainy-Day Funds

It recovered as central bank limits on ruble liquidity created a cash squeeze that boosted demand for the local currency, while policy makers introduced measures to curb banks’ needs for dollars. Along with forced revenue sales by exporters, Russia’s parliament approved a 1 trillion-ruble ($19 billion) bank recapitalization plan to try to prevent the currency crisis from spilling over into the financial system.

The government risks burning through its rainy-day funds in three years if it doesn’t change the budget structure, Finance Minister Anton Siluanov told reporters in Moscow today. International reserves tumbled $113 billion in 2015 to a five-year low of $399 billion as the Bank of Russia sought to defend the ruble.

Price Swings

To slow the drain on reserves, the central bank brought forward plans for a free float in November, stoking the biggest price swings among currencies monitored by Bloomberg globally. Three-month implied ruble volatility climbed 28 percentage points this month to 55 percent today.

Average trading volume in the ruble for the first four days of the week was almost 30 percent below the 12-month average, according to data compiled by Bloomberg. Russian markets will close for an annual New Year’s holiday from Dec. 31 through Jan. 4 and for a Christmas holiday on Jan. 7.

“I think there was an instruction to calm down the rate until the end of the year, so that retail clients don’t panic before holidays,” Iskander Abdullaev, analyst at Sberbank CIB, said in e-mailed comments. “The market’s firmness will be tested” as U.S. markets reopen today, he said.

To contact the reporters on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net; Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net

To contact the editors responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net Daliah Merzaban, Torrey Clark

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