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The ruble fell to a three-month low after OPEC effectively abandoned output limits, spurring concern a continued decline in oil prices will stymie efforts to lift Russia out of recession.

The currency weakened 1 percent to 68.8460 against the dollar by 5:50 p.m. in Moscow as Brent crude, the country’s main export blend, retreated 2.1 percent to $42.08 a barrel. With no quota to enforce, producers are now doing “whatever they want,” Iranian Oil Minister Bijan Namdar Zanganeh said.

By prolonging the global glut of oil, OPEC’s decision will make it harder to justify a stronger ruble without sacrificing budget revenue that’s generated from sales of dollar-denominated natural gas and oil. The country has no assurances for growth in the next decade, Economy Minister Alexey Ulyukayev said in an interview published on Monday in Vedemosti. The currency is on course for its third year of declines.

“After OPEC, it’s becoming clear that we can’t expect expensive oil in the next few years," said Vladimir Miklashevsky, a strategist at Danske Bank S/A. "The ruble is adjusting to new market conditions."

The world’s largest energy exporter, which relies on oil and natural gas for almost half of its budget revenue, remains in “very bad shape” after probably moving out of recession in June, Ulyukayev said. The Russian economy is forecast to contract 3.8 percent this year and show no growth in 2016.

Yields Rise

The yield on five-year government bonds rose 12 basis points on Monday, the biggest one-day jump since Nov. 24, to 10.150 percent. The Russian central bank would like to support the economy with rate cuts but must “act carefully” as it waits for developments on the oil market, Commerzbank AG said on Monday.

“Even a more cautious monetary policy might not be able to prevent depreciation if the oil price continues to fall,” Commerzbank said in a report about emerging markets in 2016.

The Bank of Russia let the ruble float freely in November last year as the price of oil fell. It also introduced FX repo auctions for banks whose clients might need dollars and euros to repay external debt. Central bank Governor Elvira Nabiullina has said this year she’s ready to protect the currency if there are threats to financial stability.

Rate Forecasts



The key rate will remain unchanged for a third meeting at 11 percent on December 11 as the inflation outlook is clouded by the weaker ruble and conflicts with Turkey following the downing of a Russian warplane over Syria, according to 15 of 28 economists in a Bloomberg survey. Twelve predict a cut of 50 basis points and one sees a reduction to 10 percent.

The Micex benchmark stock index fell 0.8 percent to 1,740.47. Bank of America on Monday raised its recommendation on Russian equities to Overweight.

"We believe it is a good time to add to Russia after the recent Turkey related correction and passing of the OPEC meeting," Bank of America analysts David Hauner and Gabriele Foa said in a research note. Bank of America sees the price of oil recovering to $55 per barrel on average in 2016.

"The risk from oil is still here, but I think that in comparison to previous periods the Bank of Russia is much better prepared to deal with the pressure," Piotr Chwiejczak, an analyst at BNP Paribas, who topped Bloomberg’s third-quarter rankings on the ruble, said in e-mailed comments.

"The market is targeting 70, but I am skeptical we will get there," Chwiejczak said, forecasting the ruble to finish the year at 66 against the dollar.