The ruble extended its worst rout in 16 years as a slump in Russian business activity showed the economic slowdown is worsening, undermining central bank attempts to shore up the currency.
The ruble sank 1.7 percent to 54.78 versus the dollar by 11:01 a.m. in Moscow, after touching a record-low for a fifth straight day. The currency has fallen 18 percent in the past seven days, the most since October 1998. The Bank of Russia said today it sold $700 million on Dec. 1, its first intervention since moving to a free float almost a month ago.
Russia’s economic crisis, exacerbated by U.S. and European sanctions over the conflict in Ukraine, is hurting the people and companies that provide services, with data today showing business activity dropped to the lowest since May 2009 in November. The country is
on the brink of a recession as oil’s 39 percent tumble since a 2014 peak in June cuts into budget revenue, about half of which comes from oil and gas industries.
“We saw an unbelievable drop in the ruble yesterday,” Artem Roschin, a foreign-exchange dealer at Aljba Alliance in Moscow, said by phone. “We’re following oil which means everything for the Russian economy and the budget. The oil-price outlook is pretty grim and it’s likely to fall further.”
While the ruble trimmed losses of as much as 6.6 percent on the day of the intervention, it has since resumed retreats to record lows, sliding 4.9 percent against the dollar yesterday.
Not Sufficient
Russia last sold foreign currency to settle on Nov. 10, when the central bank announced it was eliminating the remnants of a mechanism whereby it intervened each time the ruble broke out of a set trading band. That policy, which enabled speculators to profit from taking short positions on the currency and betting on further drops, led the central bank to spend $30 billion on interventions in October alone.“Interventions of $700 million weren’t sufficient to disrupt the speculative activity,” Anna Bogdyukevich, an economist at ZAO UniCredit Bank, said by e-mail. “I don’t exclude that the central bank will infrequently intervene with rather large amounts of foreign currency.”
When they abandoned the free float, Policy makers reserved the right to sell foreign currency unannounced if it deems there’s a threat to the nation’s financial stability.
Russia’s reserves have fallen about $90 billion this year as the central bank sold dollars and euros to help shore up the ruble. The nation’s economy is at risk of entering its first recession since 2009 next quarter, succumbing to penalties imposed over the conflict in Ukraine as the plummeting ruble stokes inflation and the slump in oil prices erodes export revenue.
‘Some Panic’
Brent crude rose 0.4 percent to $70.85 a barrel today, having dropped 12.7 percent last week as OPEC, the cartel that supplies about 40 percent of the world’s crude, left its oil-output target unchanged on Nov. 27.The Economy Ministry yesterday estimated gross domestic product will shrink 0.8 percent next year, the first government acknowledgment of the looming crisis, while a former central banker spoke of “some panic” in the financial system.
The Russia Services Business Activity Index fell to 44.5 in November, the lowest since May 2009. The yield on the government’s 10-year ruble bonds rose nine basis points to 10.90 percent, the highest level in five years.
The dollar’s 14-day relative-strength index against the ruble was at 83.9, the most since Oct. 29. A reading above 70 suggests to some traders that a reversal may be imminent.
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