By Emma O’Brien

Russia’s ruble depreciated to within 0.1 percent of breaching the central bank’s target against the dollar-euro basket as concern about slowing growth and lower oil prices deterred investors from the emerging-market economy.

The ruble weakened as much as 0.5 percent to 40.9464 against the basket today, just about 5 kopeks away from the 41 level the central bank pledged to defend almost two weeks ago. Russian economic growth slowed to 5.6 percent in 2008, compared with 8.1 percent the previous year, as a 54 percent plunge in Urals crude oil cut state revenue and corporate earnings, a government report showed today.

“Sooner or later the ruble will touch 41, it’s just a matter of time,” said Yulia Tsepliaeva, chief economist in Moscow at Merrill Lynch & co. “Sentiment toward Russia is still negative.”

Russia has drained more than a third of its reserves, the world’s third-largest, since August as it sought to engineer a “gradual depreciation” of the ruble. Bank Rossii ended the devaluation on Jan. 22, after expanding the currency’s trading band 20 times since Nov. 11, saying it would let market forces help determine the exchange rate. Policy makers will prevent the ruble from declining beyond the new target unless oil slides to and remains at $30 a barrel, the bank said.

Against the dollar, the ruble dropped 0.1 percent to 36.1727 by 5 p.m. in Moscow, retreating for the sixth straight day. It weakened 0.5 percent to 46.6174 per euro. The basket of about 55 percent dollars and the rest euros is used by Bank Rossii to mitigate currency swings that disadvantage exporters.

Offering Dollars

The central bank is offering dollars and euros at the 41 basket level today, Tsepliaeva said. “As we’re getting closer, people are getting more cautious.”

Russia raised interest rates on one-day and seven-day repurchase auctions yesterday to 11 percent in a bid to deter banks from borrowing the funds to speculate against the ruble. The central has also been limiting so-called currency swaps to 5 billion rubles ($138 million) a day. The agreements allow traders to bet on an exchange rate without having to sell the currency upfront.

“The central bank will definitely fight off speculators at 41 and maybe they’re scared of what’s to come,” Alexei Moisseev, head of fixed-income research at Moscow investment bank Renaissance Capital said. Policy makers may hold the target for about a month by selling reserves before they will be forced to let the ruble weaken to 37 per dollar by the end of the first quarter, he said.

Defending ‘Credibility’

Bank Rossii will defend the 41 level to maintain its “credibility,” according to Mikhail Galkin, head of fixed- income and credit research at Moscow-based MDM Bank.

The ruble’s continued weakness is one of the “main reasons” Russia’s RTS stock index has slumped 18 percent this year, Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow, wrote in a research note today. That compares with a 10 percent decline in the Czech Republic’s PX index and a 3 percent drop in Brazil’s Bovespa index.

“Trying to defend the ruble at this new rate will only ensure that the value of the reserves continues to fall speedily,” Weafer said. Russia’s reserves slumped $9.7 billion in the week to Jan. 23 to $386.5 billion, according to Bank Rossii. The central bank will update reserve levels on Feb. 5.

Though the ruble is the only legal tender in Russia, many mortgages, loans and rental agreements are still denominated in dollars. The dollar-ruble rate started to become a “benchmark” for how Russians view the economy after the currency’s 71 percent against the dollar in 1998, when the economy collapsed and the government defaulted on $40 billion of debt, Weafer said.

Urals crude, Russia’s chief export oil blend, rose 0.7 percent to $43.13 a barrel today. It has lost 69 percent from a July 4 record, as the worst financial crisis since the Great Depression pushes economies into recession, eroding demand for energy worldwide. Russia is forecasting an average price of $41 a barrel this year, down from an earlier prediction of $70 a barrel.

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