Ruble Falls Fourth Day as Investors Wager on Ukraine Contagion

The ruble weakened for a fourth day as investors speculated the deepening political crisis in Ukraine will hurt the outlook for Russian assets.

The ruble fell less than 0.1 percent to 41.8226 against Bank Rossii’s target basket of dollars and euros by 6 p.m. in Moscow, when the central bank stops its market operations. The ruble breached 41.85 earlier in the session. Beyond that level, Bank Rossii sells unlimited foreign currency to stem declines.

Investors may be using the ruble as a liquid alternative to bet the Ukraine crisis will deepen, Morgan Stanley analysts said in an e-mailed note today. The standoff began in November, when President Viktor Yanukovych pulled out of a European Union free-trade deal, opting instead for $15 billion of Russian aid.

“It seems the market is using the ruble as a proxy,” Jean-David Haddad, a trader at OTCEx Group in Paris, said in e-mailed comments. “The Ukrainian deterioration may weigh on Russian credit quality,” he said, citing “the bailout package and the reputational risk for Russia.”

Violent skirmishes between demonstrators and police broke out in the capital, Kiev this morning. The Health Ministry reported seven killed, including two policemen, while the opposition Svoboda party said more than 60 were dead.

‘Key Short’

The ruble declined 0.1 percent to 35.8255 per dollar and traded little changed at 49.1475 against the euro. The ruble has depreciated 8.3 percent against the greenback this year, the second-worst performance among 24 emerging-markets currencies tracked by Bloomberg.

The yield on government bonds due February 2027 fell one basis points, or 0.01 percentage point, to 8.45 percent.

Real disposable incomes in Russia fell 1.5 percent in January from a year earlier, the Federal Statistics Service said Feb. 19. The median estimate of economists in a Bloomberg survey was for 2.5 percent growth. Retail sales grew 2.4 percent, decelerating for a second month, while analysts projected a 3.7 percent jump.

The ruble remains a “key short” idea for Morgan Stanley “in light of the already weakening macro dynamic in Russia and poor sentiment,” analysts led by Rashique Rahman said.

Bank Rossii may consider tightening monetary policy if a weaker currency spurs inflation by making imported goods more expensive, the regulator said in a statement on Feb. 14, after leaving interest rates on hold. The central bank targets a decline in the annualized consumer inflation rate to 5 percent by year-end from 6.1 percent as of Feb. 10.

Tolerating Weakness

The central bank may tolerate “some further weakness in domestic demand” before deciding to increase rates, according to Dmitry Polevoy, chief economist for Russian and Commonwealth of Independent States at ING Groep NV in Moscow.

“This economic weakness may well keep the ruble under pressure via weaker sentiments towards the Russian currency,” Polevoy said in a note Feb. 19.

Bank Rossii lets the ruble trade in a flexible corridor against the basket and raised its band by 5 kopeks to 34.85 to 41.85 on Feb. 19, it said in a website statement today. The ruble currently trades in the range where the central bank sells $400 million per day.

When the exchange rate breaches the boundaries, the Moscow-based regulator intervenes “without quantitative limitations” until the ruble returns to the target range or the corridor is lifted to its level, Bank Rossii said in a statement on Jan. 30.

To contact the reporter on this story: Vladimir Kuznetsov in Moscow at

To contact the editor responsible for this story: Wojciech Moskwa at

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