Russia’s central bank shifted the ruble’s trading band the most since the incursion into Ukraine started as it burns through almost $2 billion of reserves to stem the world’s worst depreciation since June.
The monetary authority sold $442 million on Oct. 7, data on its website show today. That excludes any interventions yesterday as the ruble slid 0.5 percent versus the target dollar-euro basket. The bank said it moved the upper band by 20 kopeks to 44.85 yesterday, a level the currency has since crossed to trade at 44.9126 by 4:09 p.m. in Moscow today. The ruble closed at 40 per dollar for the first time yesterday.
The boundary shift was the biggest since March 4, when President Vladimir Putin kicked off the incursion into Crimea that triggered a standoff with the U.S. and its allies and sent the nation’s assets tumbling. Central bank Governor Elvira Nabiullina has stepped up her defense after the ruble lost the most among global peers since June, hurt by a drop in oil prices and a domestic dollar and euro shortage stemming from sanctions.
“The central bank’s currency interventions aren’t sufficient to prevent the ruble weakening,” Alexei Egorov, an analyst at OAO Promsvyazbank in Moscow, said by e-mail. “It will continue gradually giving ground, while intervening regularly.”
The monetary authority spent a total of $1.85 billion to arrest the currency’s slide in four days this month, according to data that exclude figures for yesterday and today. The depreciation yesterday probably prompted the Bank of Russia to buy another $1 billion to $1.8 billion of rubles, according to a survey of four traders and analysts.
The moves follow a five-month pause in interventions, which drained $40 billion of Russia’s reserves through May. The bank steps in each time the ruble crosses the upper limit of its trading band, selling $350 million before shifting the boundary by intervals of 5 kopeks. The latest bout of weakness comes as the country prepares to move to a free float by 2015.
The currency strengthened 0.2 percent against the dollar to 39.94 today, while weakening 0.1 percent to 50.9930 per euro.
Policy makers have raised borrowing costs by 250 basis points since the March incursion to shore up Russian assets as U.S. and European Union sanctions sparked outflows and curtailed access of Russian companies to western funding. That’s created a domestic foreign-currency shortage, with companies scrambling for dollars and euros as they contend with $54.7 billion of debt repayments in the next three months, according to central bank estimates.
“The situation, in our view, makes a central bank rate hike more likely with each passing day,” Sberbank CIB analysts Tom Levinson, Vladimir Pantyushin and Iskander Abdullaev said in an e-mailed note today. “More immediately, we think the situation demands that the bank implement a tangible foreign-exchange instrument to ease U.S. dollar liquidity pressures.”
The Russian central bank’s next rate-setting meeting is Oct. 31. Among efforts to eash the cash crunch, the bank said last week it will start offering foreign-currency repurchase agreements within “several weeks.”
Russia’s reserves have dropped by the equivalent of $55 billion this year to $457 billion last week. Brent crude slid to a 27-month low yesterday and the economy is facing its slowest growth since the 2009 recession.
The ruble has lost 15 percent against the dollar in the past three months, contributing to a worsening of inflation, which reached a three-year high in September.