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Ruble Hits Eight-Month Low as Trading Firms See Central Bank Easing Limits

The ruble slumped to an eight-month low against the euro as traders said the central bank is weakening its limits on the exchange rate amid concern inflows of foreign currency are declining.

Russia’s currency slid as much as 1.2 percent to 42.1875 per euro, the weakest intraday level since Feb. 1 and the biggest decline among more than 20 emerging market currencies tracked by Bloomberg today. It dropped as much as 0.5 percent to 30.24 per dollar.

Bank Rossii has widened the so-called floating corridor it uses to guide the ruble against a basket of dollars and euros, according to traders from three of the biggest securities firms, who declined to be identified because the policy change hasn’t been announced. A government report yesterday showed the trade surplus of the world’s largest energy exporting economy narrowed by almost a quarter in August, the biggest monthly drop in more than a year, as imports grew faster than exports.

“If you don’t have a surplus that means you don’t have foreign-currency inflow on to the market,” Vladimir Osakovsky, a Russia economist for UniCredit SpA, Italy’s largest bank, said in a phone interview from Moscow. It’s “quite possible” the basket corridor could be breached should the surplus narrow further, he said.

The ruble slid 0.6 percent to 35.4978 against the basket as of 3:47 p.m. in Moscow, headed for its weakest close in 1 1/2 weeks, according to data compiled by Bloomberg. The central bank has been buying and selling foreign currency to keep the ruble within the 33.40 to 36.40 corridor, First Deputy Chairman Alexei Ulyukayev said in June.

Currency Defense

Bank Rossii sells foreign currency when the ruble is between 35.40 and 36.40 versus the basket, according to Ulyukayev. The absence of Bank Rossii on the market today is an indicator they are no longer defending 36.40, the traders said. The new corridor was expanded by 50 kopeks at each end and is now 32.9 to 36.9 versus the basket, according to two of the traders.

A spokesman for the central bank’s press service, who wouldn’t be identified citing bank policy, declined to comment on whether the corridor had been widened.

The ruble may weaken beyond 36.40 against the basket as soon as next month as a declining current-account surplus reduces the amount of foreign currency on the Russian market, said Natalia Orlova, chief economist at Moscow-based Alfa Bank, Russia’s largest private lender.

Ruble Forwards

Non-deliverable forwards indicated more investors bet on a weaker ruble, showing the currency at 30.3302 per dollar in three months, the weakest three-month NDF level since Oct. 4. The contracts, known as NDFs, are a way of gauging the likely direction of currencies as they allow companies to hedge against exchange-rate fluctuations and foreign investors to speculate on currencies.

Options traders remain bullish on the ruble, with the currency’s one-week risk reversal rate -- the premium of put options over calls -- at 0.5 percent for a second day, from as high as 2 percent last week, according to data compiled by Bloomberg. The ruble is the European developing-nation currency that traders are most bullish on today, apart from the Turkish lira, one-week risk-reversal rates show.

Russia’s Finance Ministry sold almost all of the 2015 and 2013 ruble-denominated federal bonds it put up for auction today, even after offering the lowest yields relative to existing debt since June.

Bank Rossii, which manages the ruble to temper swings that hurt exporter competitiveness, is “gradually” moving toward its goal of a fully flexible exchange rate by 2012, according to new policies published last month. The central bank is becoming “marginal” in the nation’s currency markets and is no longer targeting a specific level of the currency, Ulyukayev said Oct. 5.

The yield on the nation’s dollar bonds due 2020 declined for a third day, to 4.19 percent, the lowest since the notes were first sold in April.

To contact the reporter on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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