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Moscow stock exchange drops more than 6 percent, ruble hit

17:47 16 January 2016 Author :  

Moscow (AFP) - Moscow stocks dropped over six percent on Friday and Prime Minister Dmitry Medvedev acknowledged "serious risks" for Russia's budget as the energy-dependent economy reels from plunging oil prices and the ruble nears a historic low.

The dollar-denominated RTS index fell as much 6.25 percent, while the ruble-denominated Micex slumped 4.73 percent, as 12-year low oil prices compounded existing economic woes for oil-dependant Russia.

By the time of closing, both indices rallied slightly, with the RTS down 5.77 percent and the Micex down 4.27 percent.

Russia's battered currency on Friday plunged to 77.73 against the dollar, passing 77 to the dollar for the first time since December 2014, when it hit a historic low of 80. By 1610 GMT, the ruble had rallied slightly to 77.65 against the dollar.

It also broke the 85 ruble against the euro mark and was trading at 85.12 at 1610 GMT.

The ruble has lost over five percent of its value since the start of 2016.

Medvedev in a government meeting on the economy said the "dramatic movement of the oil market... is creating rather serious risks for carrying out the budget."

Its economy already battered by Western sanctions and a falling ruble, Russia should be "ready for any development" on the oil market, Medvedev said.

Oil prices tumbled to new 12-year lows on Friday on the anticipation of the lifting of sanctions against Iran and renewed concerns about slowing growth in China, the world's second-largest economy.

Medvedev said that while the government will seek to maintain its social welfare package it will need to "considerably cut" spending and "reject altogether or delay" some projects.

Finance Minister Anton Siluanov this week said his ministry had already told government agencies and ministries to cut expenditure by about ten percent.

Some analysts viewed this with scepticism. "More than half the budget has been ring-fenced from the cuts," said a note from Capital Economics economists, warning that the fiscal squeeze will "last well beyond this year."

The economy ministry, which last year predicted that 2016 would see Russia's economy edge back in the black with a 0.7 percent recovery, is now forecasting contraction of 0.8 percent, Vedomosti daily said Friday, citing a draft prognosis and government sources.

President Vladimir Putin said last month that Russia had calculated its 2016 budget based on an oil price of $50 per barrel, admitting that the figure was now an "optimistic" assessment of the situation.

As this week global benchmark crude oil prices fell below $30, Medvedev made a rare concession Friday that crude could fall even further and it was "extremely difficult" to make any predictions at all.

"This adjustment in official expectations is not a surprise, as it follows weak global oil price performance," said Dmitry Dolgin, an analyst at Russia's Alfa Bank. "The key question is what policy actions will be taken following this revision."

- Russia 'a loser country' -

Grim forecasts have seen even pro-Kremlin figures voice criticism of failure to enact reforms and poorly thought-out policies, with German Gref, the chief of Russia's top bank Sberbank saying Friday that the country had "lost the competition" by betting on oil being in demand forever.

"We are among the loser countries, the downshifter countries," he said at an economic conference in Moscow, lamenting Russia's failure to invest in other technologies to stay ahead of the curve.

"The Stone Age did not end because we ran out of stones, and we can say that the age of hydrocarbons is also already over," Gref said, calling reforms of Russia's "utterly ineffective" system of state management the number one priority.

Budget cuts in Russian regions are already leading to public discontent.

Hundreds of pensioners protested in southern Krasnodar region on Friday in a rare demonstration after the authorities there removed their right to free travel on public transport.

The pensioners picketed the governor's offices in the regional capital of Krasnodar and briefly blocked a major street in the former Olympic host city of Sochi, according to local media.

"Free transportation costs the regional budget 1.2 billion rubles ($15 million) every year," the governor's office said in a statement, threatening that it would otherwise "cut other programmes."

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