The ruble gained for a fourth day as tax payments and speculation Russian exporters are being pushed to sell foreign currency outweighed concern that the sovereign’s credit rating will be cut to junk.
The ruble climbed 0.8 percent to 54.10 a dollar by 6:10 p.m. in Moscow. It had weakened as much as 1.8 percent after Standard & Poor’s said late yesterday there’s at least a 50 percent chance it will take Russia’s rating below investment grade within 90 days. The yield on government bonds due in August 2023 increased 13 basis points to 13.57 percent.
The S&P warning demonstrates the fragility of the ruble’s 48 percent rebound since its Dec. 16 record-low as Russia faces a recession that threatens to strain a financial system already battered by sanctions over Ukraine and slumping oil prices. Policy makers have bolstered the ruble by ordering exporters including OAO Gazprom to sell foreign-exchange revenue and engineering a cash crunch that drove up interbank lending rates.
“Exporters are selling some” dollars, Iskander Abdullaev, an analyst at Sberbank CIB in Moscow, said by e-mail. “Activity is very low, and the market is very thin.”
Today’s gains were driven partly by tax-payment deadlines, which typically boost demand for the local currency, according to Artem Roschin, a foreign-exchange dealer at Aljba Alliance in Moscow. In addition, the government asked Gazprom, OAO Rosneft, OAO Alrosa, OAO Zarubezhneft and OAO Kristall to reduce their foreign-currency holdings by March 1 to levels no higher than on Oct. 1, according to a document published yesterday.
Downside risks to the world’s most volatile currency remain with projections Russia’s gross domestic product will shrink 4.7 percent in 2015, according to central bank estimates based on oil prices averaging $60 a barrel.
S&P, which said it will conclude its review of the sovereign’s BBB- rating in mid-January, put the sovereign on negative watch based on “what we view as a rapid deterioration of Russia’s monetary flexibility and the impact of the weakening economy on its financial system.”
Brent fell as much as 3.3 percent to $59.65 a barrel today, bringing its quarterly drop to 37 percent. This is threatening to cut into Russia’s foreign-currency reserves, which fell by $97 billion in 2014 to a five-year low of $415 billion as the country poured money into currency interventions before eventually letting the ruble trade freely last month.
“S&P’s announcement sent a negative signal to the market,” Andrey Verkholantsev, the head of research at Kapital Asset Management LLC in Moscow, said by phone. If oil “goes below $60 a barrel, that’ll be a major negative,” he said.
The currency is on course for its first weekly appreciation in a month as a 14 percent four-day rally placates investors amid the worst currency turmoil since 1998.
OAO Sberbank’s depositors were switching rubles into hard currencies at a rate as much as six times higher than average last week, according to Alexander Torbakhov, the deputy chief executive officer. Withdrawals have since slowed and the bank expects net inflows into ruble deposits for December, he said told reporters in Moscow.
The optimism rubbed off on equity investors, with the dollar-denominated RTS Index climbing 2.7 percent today and data showing that inflows into U.S. exchange-traded funds investing in Russian stocks were the biggest in emerging markets yesterday at $108.4 million.
The yield on the 2023 securities has soared 5.75 percentage points in 2014 as the central bank raised borrowing costs six times since Russia’s March annexation of Crimea to shore up confidence in the nation’s assets.
Since the Bank of Russia hoisted its key interest rate to 17 percent from 10.5 percent on Dec. 16, the rate banks charge each other for overnight funds jumped above benchmark borrowing costs. It peaked at 27 percent on Dec. 18, before dropping to 21 percent today after the central bank sought to ease the squeeze by increasing the amount of rubles provided in foreign-currency swap facilities to $10 billion from $2 billion.
“The ruble’s devaluation is far from over and next year the currency’s slide will continue on sanctions and amid an economic recession,” Evgeny Loktyukhov, an analyst at OAO Promsvyazbank in Moscow, said by phone today.