Russia’s central bank stepped up the pace of currency interventions as sanctions and an oil-price slump spur bets policy makers will raise interest rates.
The central bank sold $1.5 billion on Oct. 8, according to data on its website today. That’s almost as much as the previous three days combined and the most for a single day since the $4.41 billion intervention that preceded the Crimea referendum to join Russia in March. Wagers for interest-rate increases soared to a six-year high as Brent oil’s slide to four-year lows sent the ruble sliding further past 40 per dollar.
The currency of the world’s biggest energy exporter suffered the worst slide globally since June as U.S. and European sanctions make it
harder for companies to refinance and prompt individuals to switch savings into dollars and euros. The cash crunch sent the premium traders pay to swap rubles into dollars to a record high today. The central bank releases intervention details with a two-day lag.
“The population is starting to watch the currency more closely,” VTB Capital analysts Vladimir Kolychev and Daria Isakova said in an e-mailed note. “This kind of herd behavior is usually only broken by decisive action from the regulator,” such as a rate increase or “bolder” currency-market support, they said.
Forward-rate agreements show bets borrowing costs will climb 155 basis points in three months, the biggest wagers since the onset of the global financial crisis in October 2008.
Rate Increases
Trying to balance an economy teetering near recession with inflation three percentage points above target, central bank Governor Elvira Nabiullina has raised the key rate by 250 basis points since March to shore up Russian assets. Multiple rounds of sanctions on companies and individuals blocked their access to western debt markets as they contend with nearly $55 billion of debt the central bank estimates is due through December.The ruble lost 0.5 percent versus the basket at 45.2311 by 4:20 p.m. in Moscow, set for a 1.7 percent five-day drop and its fifth weekly decline in a row. It fell 0.6 percent to 40.3915 per dollar, while the yield on government bonds due in February 2027 climbed 11 basis points to a five-week high of 9.8 percent.
“The ruble will continue to weaken,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail. “The central bank won’t prevent it from declining, if the velocity is gradual enough.”
Brent Tumbles
Brent’s drop below $90 a barrel is dimming the outlook for Russia’s budget revenue, about half of which comes from the oil and gas industry. That’s also set to put pressure on the nation’s foreign reserves, which fell $57 billion this year to a four-year low of $454.7 billion on Oct. 3.The monetary authority spent $3.35 billion defending the currency since September, according to central bank data that exclude any interventions yesterday and today.
The bank said it moved the upper band of its target dollar-euro basket by 15 kopeks to 45 yesterday. A Bloomberg survey yesterday showed the monetary authority dipped into reserves for another $1 billion or more yesterday to support the currency.
“The central bank is trying to protect the ruble from a sharp drop from the 40-rubles-per-dollar mark,” Vladimir Tikhomirov, the chief economist at BCS Financial Group in Moscow, said by phone. At the same time, the latest interventions are so far “quite small” compared with March, when the central bank spent more than $25 billion, he said.
The bank, which wants to adopt a free float by 2015, steps in each time the ruble crosses the upper limit of its trading band, selling $350 million before shifting the boundary by intervals of 5 kopeks.
The monetary authority will probably need to sell another $30 billion by year-end, according to Uralsib Capital estimates this week. In a bid to easing the domestic funding strain, Nabiullina announced a plan last week to offer foreign-currency repurchase agreements within “several weeks.”
“The current exchange-rate policy will probably be tweaked again before the end of the year,” Danske’s Miklashevsky said. “They probably won’t abandon interventions altogether, but will make them less frequent, perhaps trimming the currency sales to $100 million before shifting the band.”
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