Renewed Slide in Oil Price Hits Russian Ruble Again

A calm spell for the Russian ruble early on Tuesday proved short-lived, with a renewed slide in oil hitting the currency once more, despite the country’s finance minister saying that the ruble is now too cheap.

The ruble dropped about 2.4% against the dollar, taking the dollar to 52.90 rubles. The ruble sank to a record low of 53.95 against the dollar on Monday, hit by the recent slump in oil prices which will pinch Russia’s commodity-dependent budget.

Finance Minister Anton Siluanov told reporters on Tuesday that the ruble is undervalued.

“According to finance ministry estimates, the current [ruble] rate matches an oil price of substantially below $60 per barrel. With oil at $80 per barrel an equilibrium [dollar] rate will be below 45 rubles in 2015,” Mr. Siluanov said.

Brent crude was recently trading at $71.69 per barrel, down 1.2% on the day.

The combined effect of lower oil prices, geopolitical tensions and sanctions imposed against Russia are cranking up the pressure on the battered currency, which Monday fell about 6% against the dollar in a single day, the worst session since the 1998 financial crisis. Traders said the central bank stepped in to prop up the Russian currency.

“The kind of crazy intraday moves we saw Monday would be fully consistent with interventions to reduce excessive volatility,” said Ivan Tchakarov, Russia economist at Citigroup . “I find it hard to see the ruble going stronger without an attendant move up in oil prices,” he added.

Adding to the pressure, this month Russian banks and companies will have to pay back around $30 billion in foreign debt, increasing the domestic demand for dollars.

Furthermore, Russia’s economy ministry said Tuesday it now sees gross domestic product shrinking by 0.8% in 2015 compared with earlier expectations for recovery in economic growth to 1.2% from around 0.5% this year.

The gloomy forecast comes as Russia is on track to post its weakest growth since the global financial crisis this year.

Looking ahead, the market will be closely watching President Vladimir Putin ’s annual state of the nation address on Thursday for his assessment of the foreign exchange situation and the Ukraine crisis.

The ruble is the second worst performing currency this year, after Ukraine’s hryvnia, having underperformed other oil currencies such as the Nigerian naira.

—Ben Edwards contributed to this article.