The ruble sank the most in 14 weeks as the fallout from Europe’s financial crisis spurred the biggest capital outflow from Russia in a year.
The ruble weakened 1 percent against the central bank’s dollar-euro basket to 35.6387 by 7:16 p.m. in Moscow, the most since Dec. 17, and fell 0.9 percent against the dollar to 31.6005, the worst performance among 31 major currencies tracked by Bloomberg. The yield on benchmark bonds due February 2027 fell one basis point, or 0.01 percentage point, to 7.33 percent.
Net capital outflow totaled $25.8 billion in the first quarter as the crisis deepened in the euro region, Russia’s biggest trading partner. Finance Minister Anton Siluanov said the government may start buying foreign currency on the open market in the second half of the year to fill its Reserve Fund.
“It all came together: payment account data, the MinFin’s statement on market purchases of foreign currency and a general increase in panic selling from foreign players as ruble weakens,” ING Groep NV analyst Dmitry Polevoy said by e-mail.
Brent oil fell 1.5 percent in London to $108.99 per barrel. Revenue from crude and natural gas comprise about 50 percent of Russia’s state budget income.
The ruble has lost 3.3 percent against the dollar since the beginning of the year compared with gains for the Chinese, Brazilian and Indian currencies. Selling intensified on April 2 after Bank Rossii cut rates on medium-term financing tools by 25 basis points, fuelling bets it may start an easing cycle.
The ruble has lost 3 percent since March 15 as investors speculated that a bailout for Cyprus would hurt Russian assets held on deposits in the island nation.
“It has been building up and it burst,” Artem Roschin, foreign exchange trader at Aljba Alliance, said by phone. “The Central bank’s decision was the last drop.”
Russia’s central bank cut rates on loans backed with gold and non-market collateral as well as on some longer-term repurchase operations yesterday. While Bank Rossii left the main interest rates unchanged for a seventh month, policy makers will lower them by at least 25 basis points in the second quarter to boost slowing growth, according to 10 out of 13 analysts surveyed by Bloomberg.
In the short term, the ruble may continue its fall against the basket to 35.65, when the central bank is likely to step in with “symbolic” purchases to curb excessive weakening, Roschin said.
“Even stable oil prices will not lead to a stronger ruble in the coming months” as support from the seasonally strong current account fades, VTB Capital analysts Maxim Oreshkin and Daria Isakova wrote in a note to clients.
The current account surplus is traditionally strongest in the first quarter, when imports are subdued as cold weather curbs investment activity.
The next tax period starts April 15 with insurance funds contributions. Payments support the local currency as exporters use foreign exchange-denominated revenue to buy rubles.
Russia’s Finance Ministry has been discussing a central bank proposal to buy foreign currency for its Reserve Fund on the market, scrapping transactions with the regulator, Deputy Finance Minister Alexei Moiseev said in February.
The world’s largest energy exporter funnels extra proceeds from oil and gas sales to the Reserve Fund, one of the country’s two sovereign wealth funds, which is also used to help finance the budget deficit. The funds are managed by the central bank under guidelines set down by the Finance Ministry.
The possible start of purchases had been expected in 2014 or 2015. Should they go ahead in the second half of this year it may mean “extra downside pressure on the ruble,” Polevoy from ING said.
The oil price is above $97 per barrel, the level at which the Finance Ministry starts Reserve Fund purchases, he said. The central bank has “no reason to intervene massively” because current account and capital flows are almost balanced, according to Polevoy.