Ruble Heads for 2-Week Low as $75 Billion in Foreign Debt Looms

The ruble headed for a two-week low as support from local tax payments waned and an extension of European Union sanctions over Ukraine renewed concern about companies’ ability to finance their foreign debts.

Russia’s currency weakened 0.2 percent to 54.5490 per dollar by 1:39 p.m. in Moscow, bringing the depreciation in June to 4.1 percent. Bonds fell, lifting the yield on five-year Russian notes by three basis points to 11.16 percent, while the Micex Index of stocks lost 0.3 percent to 1,646.42.

With foreign capital markets still closed because of the sanctions, companies will have less scope to roll over $75 billion in external debt that comes due in the second half of the year, according to PAO Rosbank. The central bank has reduced the emergency funds it provides to banks to help with the debt payments after lenders used the dollars to bet on the ruble, fueling a rally in the local currency that officials warned was excessive.

“With the end of the tax period the ruble doesn’t have many reasons for strengthening given the increasing external repayments,” Yury Tulinov, head of research at Rosbank in Moscow, said by e-mail. “At the same time, the central bank plans to curtail dollar funding.”

The central bank stopped extending emergency one-year loans in foreign currency to local banks under the $50 billion program in the middle of May after the ruble surged 41 percent against the dollar from a low on Jan. 30. The Bank of Russia still provides one-week and four-week loans, backed by securities.

Sharp Swings

The ruble has weakened since mid-May after policy makers started buying foreign currency to replenish reserves. The Bank of Russia has bought more than $5 billion on the market since May 13 as it seeks to gradually boost its cash pile to $500 billion from $361 billion. Crude oil, Russia’s main export earner, rose 0.3 percent to $63.68 a barrel in London.

At the same time, the central bank will likely halt its daily purchases of foreign currency in the open market if the ruble starts weakening excessively, Tulinov said.

“If the ruble gradually moves to 55-56 per dollar, interventions will go on,” he said. “But if the swings become sharp again, about 2-3 percent per day, it will stop at 56-57.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE