The ruble fell to a two-month low as the Bank of Russia said it would keep buying foreign exchange to build reserves, putting pressure on the currency after the worst fighting in Ukraine in three months.
The currency fell 3 percent to 55.9870 per dollar at 6:50 p.m. in Moscow as central bank Governor Elvira Nabiullina said the country wanted to boost reserves by about $140 billion over the next few years to take them to $500 billion. Declining oil prices and an attack in Ukraine’s easternmost regions by pro-Russian separatists on Wednesday have pushed the ruble down 7 percent this week, on course for its worst drop since February.
“Now, in addition to oil and geopolitics, we should consider central bank policy of reserve accumulation as an additional risk factor for the exchange rate,” Oleg Kouzmin, the chief economist at Renaissance Capital in Moscow, said by e-mail. Rebuilding reserves “will kill the currency. It’s impossible to do this in several years, unless you have oil at $100 per barrel and sanctions lifted,” he said.
The ruble has been the second-worst performer in emerging markets in the past month as the central bank and finance ministry started buying dollars in a move analysts said aimed at stemming a rally that was curtailing export revenue. Yesterday’s flare up in Ukraine, which subsided on Thursday, risks endangering a truce signed in February and boosted the case for prolonging U.S. and European sanctions against Russia.
Government bonds fell for a second day, pushing five-year yields up 17 basis points, the most this month. The Micex Index of stocks rose 0.6 percent.
Russian gold and currency reserves fell by 24 percent in the last 12 months to $357 billion as of May 29, largely because the central bank took steps to defend the currency to damp the effect of sanctions imposed after the annexation of Crimea. The Bank of Russia abandoned its managed exchange rate in December as the slump in oil accelerated.
While Russia has “sufficient reserves by every international standard,” reaching $500 billion is a “comfortable level,” Nabiullina said in a speech to bankers at a congress in St. Petersburg on Thursday. The authority has purchased about $2.9 billion since the new reserve-accumulation program -- which involves buying between $100 million and $200 million daily -- started in mid-May.
“The authorities are very sensitive toward the ruble strengthening,” Dmitry Polevoy, the chief economist at ING Groep NV in Moscow, said in e-mailed comments. Oil prices and the situation in Ukraine will be key factors in “amplifying or loosening speculative flows,” he said.
Bank of Russia doesn’t rule out taking a pause in daily foreign-currency purchases and if volatility surges, could even start selling foreign currencies, RIA Novosti reported today, citing First Deputy Bank of Russia Governor Dmitry Tulin.