Russian ruble drops 7 percent as economy shrinks

MOSCOW - The Russian currency extended its losses on Monday after a report showed the economy has started shrinking in annual terms for the first time since 2009 as the country is buffeted by falling oil prices and Western sanctions.

Meanwhile, the government, which has been scrambling to support the ruble and the economy, announced fresh steps to keep the banks afloat. The ruble has been one of the world's worst performing currencies this year and was down another 5 percent on Monday, trading at 56 rubles per dollar in early afternoon in Moscow, wiping off some of the gains it made last week.

The fall came as the Economic Development Ministry issued a report showing the economy shrank by 0.5 percent in November compared with a year earlier. The ministry attributed the year-on-year decline in the economy, Russia's first in five years, to a sharp drop in manufacturing and investment.

The economy has been buffeted by a combination of lower prices for the country's crucial oil exports and the impact of Western sanctions.

Stabilizing the ruble is a priority for the country's monetary authorities. The Central Bank in past weeks raised its key interest rate to 17 percent and said it will offer dollar and euro loans to banks so they can help major exporters that need foreign currencies to finance operations.

The bank's foreign currency reserve has now dropped below $400 billion for the first time since August 2009, as the government has been selling the currency on the market to support the ruble. Many Russian companies and banks have been locked out of Western capital markets following the sanctions imposed on the country for its involvement in Ukraine.

The government on Monday announced new steps to prop up the banking sector. Prime Minister Dmitry Medvedev told a government session that he has just signed a decree to provide a total of 1 trillion rubles ($19.6 billion) to Russian banks. The list of the banks and the amount that each of them will receive is expected drawn up by mid-January, according to Deputy Prime Minister Igor Shuvalov.

Shuvalov said the measures should help "the banking sector be more stable in the new circumstances and safeguard it from new shocks if they do occur," he was quoted by Tass.