Russia's currency on Tuesday slipped 3% to below 63.5 rubles to the dollar as falling oil prices threaten to unwind the government's efforts to defend the currency.

The collapse of the ruble is causing price inflation throughout Russia. Inflation is running at 10%, according to The New York Times. Russian shopkeepers can't update their price lists fast enough and are telling shoppers to come back later when they've put up more-expensive price tags on staple goods. The most extreme example? It's leading to a cheese shortage, The Times says:

A variety of goods — from basmati rice to imported hard cheeses — have simply vanished, leaving consumers with fewer and less desirable choices.

Sausages are in short supply, too, the BBC says:

It's not just inflation that is influencing the festive shop in Russia. So are the "anti-sanctions" Moscow imposed on the West earlier this year. As a result, certain imported products which may have graced some new year tables here in the past are no longer available: like French cheese, Norwegian salmon, German sausage.

After halting the rout last month that saw the ruble briefly touch 80 rubles to the dollar and 100 rubles to the euro through massive currency interventions in December, the authorities have proved unable to unwilling to prevent slides at the start of the new year.

The recent falls have been predominantly driven by the continually dropping price of oil, which on Tuesday hit a new five-year low.

The ruble versus Brent oil price. Bloomberg

Allowing the ruble to fall against other major currencies should soften the blow of falling oil prices on government revenues (if the ruble tracks falls in oil prices, it means that although each barrel of oil is worth less in dollar terms, it retains its value in ruble terms). However, for Russian companies with large foreign-currency-denominated debts and limited foreign revenue sources — such as a number of Russian banks — a weaker ruble also makes it much more expensive to fund repayments.

This helps explain why the government was forced to bail out one of the country's largest lenders, Gazprombank, buying up 39.95 billion rubles ($708 million) of preferred stock at the end of last month using money from the National Welfare Fund. The state-run VTB Bank and National Bank Trust have also been beneficiaries of government bailouts over recent weeks.

Russian credit default swaps, which provide insurance against default by Russian borrowers and therefore are a good indication of market sentiment, climbed 52 basis points to 609 basis points as concerns over the country deepen.



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