The ruble tumbled the most since 1998, sliding past 60 for the first time, as traders tested Russia’s willingness to defend the currency amid an oil slump that’s pushing the economy toward recession.
The ruble weakened 9.1 percent to 64.0005 per dollar at 7:57 p.m. in Moscow, the steepest slide on a closing basis since the year Russia defaulted on local-currency debt. The 10-year government bond yield rose 23 basis points to 13.23 percent. Three-month implied volatility for the ruble climbed to a six-year high as the rout triggered the Bank of Russia to sell foreign exchange, according to BCS Financial Group and MDM Bank.
Traders are pressing the central bank to buy more rubles to limit a selloff that has wiped out 22 percent of the currency’s value this month. Oil’s slide toward $60 a barrel in London and sanctions over the conflict in Ukraine are undermining confidence in Russian assets as evidence mounts that the economy is entering a recession. Industrial output fell the most in more than a year in November, data showed today.
“The collapse of the ruble has intensified amid falling oil prices and a central bank that failed to deliver a decisive actions to counteract the ruble decline,” Bernd Berg, a London-based emerging-market strategist at Societe Generale SA, said in e-mailed comments. “Russia is facing the risk of a currency and confidence crisis.”
The ruble’s slump takes its 2014 depreciation to 48 percent, surpassing Ukraine’s hryvnia for the first time as the world’s worst performer among peers tracked by Bloomberg.
Russia’s currency led declines across developing countries today as Turkey’s lira tumbled as much as 3.9 percent to a record-low 2.3926 and currencies in Indonesia and South Africa weakened at least 1.4 percent. Investors are moving out of riskier assets after Brent crude tumbled 0.8 percent to $61.33 per dollar as investors weigh the prospects for highest U.S. interest rates.
The failure of a central-bank attempt to offer long-term local currency funding today was a “trigger” for the ruble’s slide, according to Luis Costa, a strategist at Citigroup Inc. in London. The Bank of Russia said it canceled the auction of 700 billion rubles ($11 billion) of three-year funding after receiving no bids.
“That suggests the local markets are still biased towards USD funding,” Costa said by e-mail. “Of course, oil is not helping either. A perfect storm for the ruble.”
The economy of the world’s largest energy exporter is set to shrink 0.8 percent in 2015, the government said this month, in what would be its first recession since 2009. Russia is set to register $125 billion of capital outflows in 2014, the most since 2008, according to Economy Ministry forecasts.
Bonds and stocks are underperforming developing-country peers this month, with the dollar-denominated RTS Index declining 26 percent since Nov. 30 and ruble bonds handing investors losses of 21 percent, according to the Bloomberg Emerging Market Local Sovereign Index.
“People start pricing a long period of low oil prices,” Dmitry Dudkin, the head of fixed-income research at Uralsib Financial Corp. in Moscow, said by e-mail. “And in these circumstances, Russia doesn’t look like a place where one should invest money, even without sanctions.”
Policy makers failed to stop the ruble’s slump this month with more than $6 billion of interventions and a 100 basis-point interest-rate increase. The central bank sold at least $350 million today, according to Luis Saenz, the head of equity sales and trading in London for Moscow-based BCS.
That takes total interventions for the year past $80 billion, helping drag foreign-currency reserves to a five-year low of $416 billion. Russia derives about 50 percent of its budget revenue from oil and natural gas industries. While the weaker currency helps offset a drop in oil earnings, it’s also stoking inflation that crossed 9 percent for the first time since 2011 last month.
“The market is pushing at an open door with the central bank so hesitant” to intervene, Tom Levinson, the chief currency and interest rates strategist at Sberbank CIB in Moscow, said by e-mail.