The Russian ruble has hit a new six-month low against the dollar, as Moscow struggles with tumbling oil prices and economic sanctions.
The currency plunged 1.3% to 65.7 rubles per dollar in the early hours of Monday. It has since recovered to 65.5 per dollar.
Russia’s central bank stopped buying foreign reserves in July, hoping to prevent the ruble from falling further. But it didn’t help — the ruble has dropped 44.8% against the dollar in the last year and 12% in the last month.
The currency has been hit hard by the collapse in oil prices. That’s because around half of Russia’s government revenue comes from the oil industry. The country’s budget is based on the assumption it could sell its oil for $50 per barrel or more. But oil is now trading below $42 a barrel, just a year after reaching $115 last summer.
On top of the oil slump, Russia is also facing pain from Western sanctions, imposed on Moscow over its role in the crisis in Ukraine.
This double hit has pushed Russia into deep recession, its first since 2009. Russia’s economy shrunk 4.6% in the second quarter, the biggest drop since the global financial crisis in 2009.
The IMF expects Russian GDP to shrink by 3.4% this year and by more than 1% in 2016, as falling real wages, the higher cost of borrowing and shattered confidence hit domestic demand.
Moscow’s retaliatory embargo on Western food has helped drive inflation higher. It reached 16% in July.