Elvira Nabiullina, chairman of Russia's Central Bank, vowed to take steps to punish... Read More
One-month implied volatility on the ruble, which reflects traders’ expectations for future swings in the exchange rate, reached 33 percent on Nov. 10, almost double that of Brazil’s real, the second-most volatile among 41 major currencies tracked by Bloomberg. That’s the widest gap between the two based on Bloomberg data dating back to 2005. The ruble’s volatility gauge is close to three times higher than South Africa’s rand, which historically has had the biggest fluctuations among the world’s major currencies.
The ruble has slumped 31 percent against the dollar this year as oil fell to
a four-year low and international sanctions tied to the conflict in Ukraine shut Russian companies out of overseas capital markets. Volatility remained near levels last seen during the global financial crisis of 2008 as the Bank of Russia pushed forward a plan to allow the currency to trade freely in a bid to preserve foreign reserves.
“It’s very hard for us to find a scenario to own any Russian assets,” Eric Fine, a New York-based money manager at Van Eck Global which oversees $30 billion, said by phone from New York on Nov. 12. “It’s extremely risky. It’s going to get worse before it gets better.”
Oil Plunge
While the ruble’s rout eased by some measures last week, it still posted its 10th straight slide, marking the longest streak of weekly losses since 2005.It has retreated 1.2 percent since Nov. 10, when Central bank Governor Elvira Nabiullina pledged action against traders who bet against the currency. The ruble is heading for the worst annual selloff since 1998, when the government defaulted on $40 billion of debt.
President Vladimir Putin said on Nov. 14 that Russia’s economy faces a potential “catastrophic” slump in oil prices. Brent fell last week below $80 a barrel for the first time in four years, eroding revenues for Russia, the world’s largest energy exporter. The European Union and the U.S. are discussing new penalties on Putin’s government for the country’s interference in Ukraine. Russia has denied involvement in the conflict.
The ruble’s volatility gauge reached a six-year high of 33 percent on Nov. 7, before falling to 27 percent last week. As recently as July, the ruble had fewer swings than the rand. The South African currency’s implied volatility has averaged 17 percent since 2001, more than any other country tracked by Bloomberg.
Root Canal
Policy makers hastened efforts to switch to a free float on Nov. 5 after drawing down foreign reserves by $90 billion in an unsuccessful bid to stem the ruble’s rout. Nabiullina vowed to take steps to punish speculators by curtailing the availability of rubles in the financial system. She has also raised interest rates 4 percentage points to 9.5 percent this year.In a sign that the demand for the dollars is slowing, the premium traders are willing to pay to hold dollars rather than rubles has shrunk. The so-called five-year basis swap strengthened to minus 1.88 percentage points last week, from a record minus 2.93 on Oct. 10, data compiled by Bloomberg show.
“That kind of volatility has been unheard of,” said Steffen Reichold, an emerging-markets economist at Stone Harbor Investment Partners LP, by phone on Nov. 12. “What they need is some sense of stability. That may come with time.”
Wider currency fluctuations may encourage households to convert their ruble deposits into dollars, increasing pressure on the central bank to raise borrowing costs further to stem the capital flight, said Citigroup Inc. and Capital Economics Ltd. The central bank boosted its estimate of net capital outflows this year to $128 billion on Nov. 10, double the $61 billion it reported for 2013.
“I would rather have root canal work than buy some” rubles, said Paul McNamara, a money manager who oversees $6.3 billion in debt at GAM U.K. Ltd. in London, by e-mail last week. “I don’t regard Russia as a sensible place to invest.”
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