Russia’s economic pain worsened as a measure of services dropped to the lowest point since May 2009 and the central bank attempted to stem the ruble’s biggest slide in 16 years.
The ruble touched a record low for a fifth day as data showed a gauge of business activity fell to a worse-than-forecast 44.5 in November. The currency rebounded amid speculation the Bank of Russia intervened after a 16 percent depreciation in six days, the most since the 1998 default. Wagers for interest-rate increases surged to a six-year high, while bonds of state-run VTB Bank sank on concern falling oil is straining lenders’ finances.
The services data are “the lights of recession, which, like a train, is getting closer,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Brondby, Denmark, said by e-mail. “Services is the first industry where the savings and the drop in consumer spending is seen.”
Russia’s Economy Ministry acknowledged for the first time yesterday that the economy of the world’s biggest energy exporter will fall into a recession next year, while a former central banker spoke of “some panic” in a financial system beleaguered by sanctions over the conflict in Ukraine. The 39 percent retreat in Brent crude since June’s 2014 peak is curtailing budget revenue, about half of which comes from oil and gas industries.
The Bank of Russia said today it sold $700 million on Dec. 1, its first intervention since moving to a free float almost a month ago. The central bank probably spent about $600 million to $1 billion defending the ruble today, according to Alexander Myulberger, the head of foreign-exchange trading at BCS Financial Group in Moscow.
The ruble weakened to a record 54.9090 after the release of the services data, before rebounding as much as 2.1 percent and trading 1.9 percent higher at 52.82 per dollar by 7:13 p.m. in Moscow. The RTS stock index added 2.5 percent, snapping six days of declines. The yield on Russian 10-year bonds jumped 16 basis points to 10.97 percent, the highest since 2009. Five-year credit default swaps protecting Russian debt against non-payment also rose to a five-year high.
“They’re intervening in order to show that they’re monitoring the situation and won’t let the ruble go out of control,” Evgeny Shilenkov, the head of trading at Veles Capital LLC in Moscow, said by phone. “Conceptually, nothing has changed and the ruble will continue falling on oil and the economy.”
Russia’s foreign-currency reserves shrank about $90 billion this year to $420 billion as the central bank sold dollars and euros to help shore up the ruble before abandoning the intervention policy. The currency lost almost a third of its value since President Vladimir Putin started his incursion into Ukraine’s Crimea peninsula in March, the most among 24 developing countries tracked by Bloomberg.
The annexation of the Black Sea region that month led the U.S. and European Union to impose sanctions on Russian companies and individuals, largely blocking their access to western debt markets and creating a domestic dollar shortage.
While oil’s rout has compounded the depreciation, the weaker ruble boosts proceeds of the nation’s energy exporters in local terms, helping offset the drop in the price of the commodity. Russia’s government registered a surplus of 1.1 trillion rubles in the first 10 months of the year, up 85 percent from a year earlier.
Brent crude rose 0.5 percent to $70.90 a barrel today, trimming its loss this quarter to 25 percent.
The Russia Services Business Activity Index fell from 47.4 in October, according to data released by HSBC Holdings Plc. and Markit Economics today. The median estimate of eight economists surveyed by Bloomberg predicted an increase to 47.8. A reading below 50 signals contraction.
The data came after the Economy Ministry yesterday estimated gross domestic product will shrink 0.8 percent next year. The ruble drop and four interest-rate increases this year are a “bad combination” for growth and lenders, VTB Bank’s supervisory board Chairman Sergey Dubinin said yesterday at a banking forum in London.
Forward-rate agreements show wagers for another 220 basis points of rate increases in the next three months, the most since October 2008, data compiled by Bloomberg show. VTB’s 9.5 percent perpetual bonds dropped 13 percent this week to 69.07 cents on the dollar, to yield a record 14.21 percent, according to data compiled by Bloomberg.
“The sharp tightening of the monetary policy in end-October and the continuing ruble rout are affecting expectations in the financial sector,” Tatiana Orlova, the chief economist for Russia at the Royal Bank of Scotland Group Plc in London, said in an e-mail.