The ruble ended its longest losing streak in 14 months as Russia’s plan to start auctioning foreign currency eased concern a dollar and euro shortage will worsen.
The currency strengthened 0.2 percent against the central bank’s target dollar-euro basket to 45.7505 at 6 p.m. in Moscow, after losing 3.3 percent in the previous eight days. The yield on 10-year government bonds fell 10 basis points from a five-year high to 9.87 percent.
Russia will allow banks to hold $3 billion for at least a month in so-called deposit auctions, Svetlana Nikitina, aide to Finance Minister Anton Siluanov, told Bloomberg News by e-mail. The initiative, which comes as the central bank plans repurchase agreements in foreign currencies, marks the latest attempt to ease a cash crunch caused by U.S. and European sanctions over Ukraine. Russia has spent more than $7 billion in October to stem the ruble’s slide as oil prices tumble.
“If the central bank is able to transfer dollars to those who need them, we may see an even stronger” rally, Aram Kazaryan, a foreign exchange trader at MDM Bank in Moscow, said by e-mail. “People who were long on the dollar decided to take profits on this news.”
The ruble recovered from a record-low 41.0475 per dollar earlier, advancing to 40.6670. Bets for interest-rate increases retreated for a second day from a six-year high, while the cost of swapping dollars into rubles was little changed.
Policy makers are laboring to curb a deficit in dollar funding as Russian companies contend with $54.7 billion of debt repayments in the next three months, according to central bank data. Corporate borrowers need to find at least $90 billion domestically by the end of 2015 to refinance debt, Economy Minister Alexei Ulyukayev said Oct. 8.
Given the scale of the shortage, the deposit auctions won’t be able to fix the cash crunch on their own, especially if oil prices keep falling, ING Groep economist Dmitry Polevoy said in an e-mailed note.
Brent oil was little changed at $85.11 today after retreating 28 percent from a June peak, undermining Russia’s fiscal outlook as the government gets almost half of budget revenue from oil and gas industries. The central bank has spent around $11 billion to slow the ruble’s retreat, eating into its $454.7 billion of currency reserves.
Trading in forward-rate agreements indicates that rates may rise 130 basis points in three months, down from 200 points on Oct. 13, the most since the onset of the global financial crisis in 2008, according to data compiled by Bloomberg.
Policy makers raised the key interest rate by 250 basis points to 8 percent since February in a bid to stem capital outflows that worsened as the U.S. and its allies accused Russia for destabilizing eastern Ukraine. Putin has denied any involvement.
The Bank of Russia, which has said it plans to adopt a free float by next year, currently allows the currency to trade within a 9-ruble-wide corridor.
When the ruble weakens past the boundary’s limit, the bank spends $350 million in defending it before it shifts the band by 5 kopeks in an effort to smooth the retreat, according to its guidelines. It repeats the process each time the currency depreciates by 5 kopeks. The size of interventions is typically released with a two-day lag on the central bank’s website.