Russia Seen Turning to Crisis Playbook to Prevent Ruble Rout

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Russia's Central Bank Governor Elvira Nabiullina
Elvira Nabiullina, governor of Russia's central bank. Photographer: Andrey Rudakov/Bloomberg

Russia’s central bank may pick up where it left off earlier this year to avert another run on the ruble.

To take the pressure off the currency, the Bank of Russia will restart one-year foreign-exchange repurchase operations that were halted June 1, according to 14 of 17 economists surveyed by Bloomberg. Other support measures may include “targeted” currency interventions and a delay of further interest-rate cuts, according to BNP Paribas SA. Policy makers will start verbal intervention with the oil price below $50 a barrel, Royal Bank of Scotland Group Plc said.

The central bank may be forced to take a page from the playbook used to fight Russia’s worst currency crisis since 1998 as companies face growing repayments of external debt and last week’s suspension of foreign-exchange purchases fails to arrest a plunge in the ruble. It made currency available through its operations starting in October, introducing one-year facilities the following month to curb a deficit in dollar liquidity.

“FX repo auctions are an emergency facility used when pressure on the ruble is extreme,” Sergey Narkevich, an analyst at PAO Promsvyazbank in Moscow, said by e-mail. “Oil prices will with high probability stay low in the next few months. At the same time, a large amount of external debt repayment is due in September 2015, so it is likely that the Bank of Russia will launch the 12-month FX repo auctions then.”

The central bank didn’t respond to questions about the possibility of resuming the auctions and said all comments on the issue will be made publicly available on its website.

Hands Tied?

Most economists in the survey predicted that 12-month foreign-currency auctions will be resumed in September at the latest, with the rest seeing the program revived some time in the fourth quarter. Some of the loans borrowed by banks begin to expire in November.

“The central bank’s hands are tied,” Tatiana Orlova, the chief Russia economist for RBS in London, said by e-mail. “The resumption of 12-month FX repo auctions is the least painful way of supporting the ruble, versus FX interventions or rate hikes.”

The central bank last week reduced rates for the fifth time this year, cutting its benchmark by a half point to 11 percent, while dropping its commitment to continue easing as inflation decelerates.

Oil, Ruble

Oil is trading in a bear market as expanding supplies and signs of slower economic growth in China fueled a rout in commodities. That made the ruble the worst performer in the past month among among 24 emerging-market currencies tracked by Bloomberg.

The ruble appreciated against the dollar after three days of losses, climbing 0.9 percent to 62.98 at 6:40 p.m. in Moscow. Brent futures rose as much as 1.9 percent, paring a 5.2 percent fall on Monday, and traded 1.1 percent higher at $50.08 a barrel on the London-based ICE Futures Europe exchange.

The Bank of Russia has fewer tools available to shore up the ruble after introducing a free float last November. It’s pledged to avoid interventions on the foreign-exchange market unless the currency’s swings threatened financial stability.

Russian companies, which have to pay off about $35 billion in net foreign debt in the second half of the year, have accumulated “significant” foreign-currency liquidity, the central bank said Friday. Taking into account the Bank of Russia’s foreign-exchange repo operations and its pause in currency purchases, that “will ensure no additional pressure on the ruble” in the third and fourth quarters, it said in a statement.

Payments Loom

Lenders have $32.8 billion in foreign-currency funding from the central bank, including $26 billion in one-year agreements, with the program’s ceiling set at $50 billion. Repayments on 12-month facilities are looming in November, which may represent “a considerable risk for the system,” Sberbank CIB analysts Iskander Abdullaev and Alexander Golinsky said in a report on Monday.

Loans of $5 billion expire in December with more than $15 billion due in the first quarter, Sberbank CIB estimates. That will coincide with large redemptions of foreign debt by Russian companies, bolstering the case for the central bank to remove limits on providing dollar liquidity, it said.

“It seems likely that we see additional actions to support the ruble in case of further downward pressure,” Gunter Deuber, an analyst at Raiffeisen Bank International AG in Vienna, said by e-mail. “As the central bank has started to engage in ruble fine-tuning and may have to start phasing out the regulatory forbearance in the banking sector, it should definitely not be interested in much ruble weakening from where we are now.”

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