The ruble rallied for a second day as Russian central bank Governor Elvira Nabiullina warned she will limit funding being used to speculate on further declines in a currency she deems has fallen too far.
The ruble jumped 2.3 percent to 45.5910 per dollar by 7:28 p.m. in Moscow, the biggest advance since it surged the most in at least 11 years on Oct. 30. That trimmed this year’s slide to 28 percent, the steepest among 24 emerging markets tracked by Bloomberg. Ten-year government bond yields fell the most in more than a week, while stocks reached a four-month high.
Nabiullina said ruble liquidity provided by the central bank was partly being used “for games on the currency markets,” according to an interview with state channel Rossiya 24 today. She said policy makers will temporarily limit ruble liquidity, without saying how. The authority will probably curtail the size of repurchase auctions, according to Danske Bank A/S and BCS Financial Group.
“The central bank is trying to limit the old trick of converting rubles from repos into FX to earn on the devaluation,” Vladimir Miklashevsky, an economist at Danske Bank in Helsinki, said by e-mail. “They must be careful not to push up interbank rates. An FX deficit and ruble deficit could trigger a crisis in the banking sector.”
The bank lends local currency to lenders secured with bonds and other collateral at regular auctions of repurchase agreements maturing in one and seven days. At the last offering of week-long repos, banks borrowed 2.8 trillion rubles ($62 billion) at a weighted rate of 8.0993 percent. The next seven-day auction is due tomorrow.
“We would expect dollar sales to spike as banks will seek rubles to pay back the” central bank, Luis Saenz, the head of equity sales and trading at BCS in London, said in an e-mailed note.
The ruble had its worst week in at least 11 years through Nov. 7, losing 7.8 percent against the dollar. The slide has worsened as oil plunged to four-year lows in London and sanctions over President Vladimir Putin’s alleged role in the Ukraine conflict cut companies off from global-debt markets.
“On expectations of the ruble’s weakness everyone joined the speculative game, even the population,” Nabiullina told Rossiya 24. “We see this situation and since in our view the ruble’s exchange rate is strongly undervalued relative to the balanced value, we took such measures in order to limit speculative demand.”
Predicting that sanctions will last through 2017 and oil will average $95 a barrel next year, the Bank of Russia cut its 2015 growth forecast to zero and pushed back its medium-term inflation target of 4 percent by one year to 2017, according to a revised three-year monetary policy plan.
The central bank also took the ruble another step closer to a free float today by eliminating the remnants of a mechanism whereby it has intervened almost daily since the start of October. On Nov. 5, policy makers abolished their predictable intervention policy that had enabled traders to short the currency. Since then, the central bank has spent $350 million a day to defend the ruble.
Now, the central bank will only intervene unannounced when it sees threats to the nation’s financial stability. It said Nov. 7 it had noticed signs of “feverish demand” for foreign currency that entailed a “risk.”
“This is the final transition to a modified free-floating framework,” Oleg Kouzmin, an economist at Renaissance Capital Ltd., said by e-mail.
The appreciation helped send the Micex Index of equities up 1.2 percent, led by OAO Sberbank, the nation’s largest lender.
The stronger ruble leads investors to “favor domestically-oriented stocks over exporters,” Anvar Gilyazitdinov, who manages $10 million at Rye, Man & Gor in Moscow, said by phone today. The yield on 10-year government debt fell nine basis points to 10.03 percent.
Russian officials are stepping up their verbal support for the currency. Putin blamed the ruble’s slide on “speculative jumps” while speaking at the APEC summit in Beijing today. Economy Minister Alexei Ulyukayev told RIA Novosti on Nov. 8 that the currency was oversold.
The ruble’s 14-day relative-strength index against the dollar was at 31.1 today, the first time it wasn’t in oversold territory since Oct. 31, according to data compiled by Bloomberg.