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The managed currency weakened 2.5 percent to 41.6870 per euro at 12:56 p.m. in Moscow, the lowest since the European currency started trading in 1999. It fell 0.7 percent to 29.1884 versus the dollar, the lowest since Oct. 2004. Bank Rossii allowed the ruble to fall 1.7 percent against its basket of 55 percent dollars and 45 percent euros, the most since the measure was introduced in February 2005, according to a central bank official who declined to be identified, citing bank policy.

The ruble has fallen 19 percent against the basket since Russia’s invasion of Georgia in August, to 34.8170. That five-day war, the global credit squeeze and plunging oil prices have led investors to pull more than $200 billion out of Russian investments in the last five months, according to BNP Paribas SA.

“A large part of the government’s revenues, such as oil and gas export duties and extraction taxes, is dollar-denominated, so the ruble weakening certainly helps both the budget and income statements of the oil and gas producers,” said Ronald Smith, head of research at Alfa Bank in Moscow.

Today’s decline is the 12th of more than 1 percent against the basket since Nov. 11. Russia may have to weaken the ruble another 5 percent to bring it into parity with other currencies dependant on commodity prices, such as the South African rand, Norwegian kroner and Australian dollar, Smith said.

Oil Prices, Deficit

The ruble may need to fall another one-fifth against the basket if oil prices don’t rise and Bank Rossii doesn’t change its policy, said Evgeny Gavrilenkov, chief economist at Troika Dialog in Moscow. Gavrilenkov called in October for a one-time depreciation of as much as 20 percent, when oil prices were above $60 a barrel.

Russia is expecting to run its first budget deficit since 1999 next year, of as much as 2 trillion rubles ($69 billion), because of lower-than-expected oil prices, Finance Minister Alexei Kudrin said on Dec. 27. The price of Urals crude, the country’s main export blend of oil and its biggest export earner, has fallen 78 percent to about $32 a barrel since reaching a record high July 3. That’s less than half of the $70 Russia needs to balance its budget in 2009.

The economy, which has averaged 7 percent growth since the 1998 debt default ruble devaluation of more than 70 percent against the dollar, may slip into a recession in the first half of 2009, Kremlin economic adviser Arkady Dvorkovich told Bloomberg Television on Dec. 19.

Stocks, Bailout

The ruble-denominated Micex Index of 30 Russian stocks has lost 67 percent this year, heading for the biggest decline since 1998, when the ruble lost more than 70 percent against the dollar. The market value of state-run OAO Gazprom, the monopoly exporter of natural gas, has fallen to $87 billion from more than $300 billion in May.

Plunging stock prices and the seizure of capital markets has forced Russia’s richest businessmen to seek financing from state development bank Vnesheconombank, or VEB, which is channeling part of the government’s $200 billion in bailout funds. Prime Minister Vladimir Putin heads VEB’s supervisory board.

Oleg Deripaska’s United Co. Rusal, the world’s biggest aluminum producer, received $4.5 billion from VEB to repay foreign lenders, putting up as collateral its 25 percent stake in OAO GMK Norilsk Nickel, the country’s largest mining company.

The move extended six weeks of devaluations by Russia’s central bank designed to offset the impact of the global economic crisis and falling oil prices as the country’s main export commodity approached its lowest level since 2004.

Mikhail Gorbachev, the former Soviet leader, warned Russia faced “unprecedentedly difficult and dangerous circumstances” and could be “heading into a black hole”. “It is not clear what the fate of our rouble will be or if society has sufficient financial and moral resources,” he said.

After the depreciation, which was the eighth so far this month, the rouble declined as much as 1.2 per cent to Rbs29.06 versus the dollar yesterday, a four-year low. The rouble has now lost almost 20 per cent of its value against the US currency since August.

Analysts at Barclays Capital said the best case scenario would see Russian policymakers, facing mounting evidence of a recession, allowing a one-off depreciation of 10 per cent or more.

The rouble’s slide comes as the government faces scrutiny over its policies. A demonstration earlier this month in the far eastern city of Vladivostok marked the first major challenge to the Kremlin since the onset of the global financial crisis.

Mikhail Sukhodolsky, a deputy interior minister, warned on Christmas Eve that there could be further protests. “The situation may be exacerbated by a growth in frustration of workers over the non-payment of wages or those threatened with dismissal,” he said.

His remarks coincided with criticism of the Kremlin’s rough handling of the protests in Vladivostok. Moscow-based Omon riot police detained about 61 people in the protests against car import duties designed to prop up domestic car producers, but making foreign vehicles prohibitively expensive for ordinary Russians.