Ruble Rallies Second Day as Russia Tax Deadline Boosts Demand

By Vladimir Kuznetsov  

The ruble rallied as companies sold dollars to pay local taxes, shoring up the currency for a second day as China signaled it’s prepared to offer Russia support to tackle the worsening economic slump.
The ruble strengthened 3.3 percent to 56.6865 a dollar by 12:41 p.m. in Moscow, bringing its two-day appreciation to 8.5 percent. The yield on 10-year government bonds fell 26 basis points to 13.34 percent, while the dollar-denominated RTS Index of equities climbed for a fourth day.
Corporate tax payments that Bank of America Corp. estimates will amount to 500 billion rubles ($8.8 billion) are bolstering the ruble as last week’s interest-rate increase to 17 percent squeezes money-market funding. Two Chinese ministers offered support for President Vladimir Putin as Russia’s highest borrowing costs in 11 years choke an economy already facing a deepening slowdown due to sanctions over Ukraine and low oil prices.
“Our official forecast is still 48 rubles per dollar by the end of the year and we still stand by it,” Vladimir Osakovskiy, the chief economist for Russia at Bank of
America in Moscow, said aid by e-mail. “There are clearly plenty of risks, including potential for escalation of the Ukraine crisis, the risk of capital controls, further oil price moves and so on.”
China’s Commerce Minister suggested that expanding a currency swap agreement and increasing the use of yuan in bilateral trade would have the greatest impact in aiding Russia, according to a Dec. 20 report by Hong Kong-based Phoenix TV. China is ready to help and is confident Russia can overcome its economic difficulties, Foreign Minister Wang Yi was cited as saying. The countries signed a three-year currency-swap line of 150 billion yuan ($24 billion) in October.

Exporter Cash

Russia’s government and central bank have taken steps to boost demand for the currency since the ruble plunged to a record-low 80.10 a dollar on Dec. 16, the worst day of the nine-month financial crisis. Central bank Governor Elvira Nabiullina hoisted the key interest rate from 10.5 percent, culminating weeks of limiting the supply of cash to banks.
The rate banks charge each other for overnight funds fell for a second day since touching 27.3 percent, the highest in at least eight years, on Dec. 18.
Putin urged business leaders, including executives of large exporting companies, to conduct “responsible” currency-trading policy during a meeting on Dec. 19, according to the Vedomosti newspaper. Exporters were asked to inform the Bank of Russia of their plans to sell foreign exchange, the paper cited an unidentified person close to one attendee as saying.
While the ruble has rallied 41 percent since last week’s trough, it remains on course for its biggest annual depreciation since 1998, the year Russia defaulted on local debt. Brent crude increased as much as 2.6 percent in London to $62.97 per barrel today, trimming a quarterly drop to 34 percent. Russia gets about 50 percent of state revenue from the oil and natural gas industries.