Ruble traders shrugged off assurances from Russia’s prime minister and sold the currency as crude headed for $40 a barrel and the rout in global markets deepened.
The ruble was the biggest loser among developing-nation currencies on Monday, breaching 70 versus the dollar on its way to a seven-month low. Panic in emerging and developed markets alike eclipsed Dmitry Medvedev’s forecast Saturday that the ruble will recover as the nation’s state-run exporters sell dollars and euros to pay local-currency tax bills. The RTS stock index tumbled to the lowest level since January.
China’s decision to devalue the yuan two weeks ago has triggered concern growth is ebbing in Russia’s biggest trading partner. Credit Suisse Group AG predicted the Bank of Russia may turn to the crisis toolkit it used during last year’s plunge and reduce the cost of dollar funding it provides in order to ease companies’ access to foreign currency as the biggest month of debt payments since February approaches.
“The markets are panicking and in such conditions almost any ruble level is possible,” Yury Tulinov, head of research at Rosbank PJSC in Moscow, said in e-mailed comments. “The global selloff will continue as long as there are concerns about China and oil extends declines.”
The ruble slid as much as 3.5 percent before trading down 2.5 percent at 70.8770 by 5:44 p.m. in Moscow, its eighth day of declines. Local-currency government bonds fell for a seventh day, lifting the five-year yield 48 basis points to a five-month high of 12.43 percent.
Russia has been among the most vulnerable to the retreat that has gripped emerging markets from Asia to Latin America. The world’s largest energy exporter gets about 50 percent of its revenue from oil and gas. Brent crude, the benchmark used to price Russia’s main export blend, dropped 3.8 percent to $43.75 per barrel on Monday.
The government leaned on Russia’s biggest exporters as the crisis deepened at the end of last year, encouraging them to spread out their ruble purchases to avoid provoking sharp swings in the currency. Exporters will start selling hard currency in the very near future to support the ruble rate, Medvedev said in Kurilsk on Saturday. At the same time, restricting capital flows is a bad idea “even in the current situation,” he said, adding that such controls could throw Russia’s economy back to the 1990s.
Before November last year, the central bank sold foreign currency from its reserves to slow the ruble’s declines. Since shifting to a free-floating exchange rate to conserve the $362.8 billion cashpile, the ruble has moved in lockstep with oil. While the currency has followed crude lower, the declines help protect the budget by bolstering the local-currency revenue the government collects from exports.
If oil continues its drop toward $40 the ruble may weaken as low as 75 per dollar, said Dmitry Polevoy, the chief Russia economist at ING Bank Eurasia JSC. The ruble’s three-month implied volatility, a measure of exchange-rate swings, is at 27 percent, the highest globally.
“I’m seriously concerned about the ruble as Brent crude declines,” Piotr Matys, an emerging-market strategist at Rabobank in London, said by e-mail. “In the worst case scenario, the dollar-ruble pair could hit targets well above the 80 level if oil remains on track to revisit the 2008 low.”
The Micex Index of stocks fell 1.2 percent to 1,643.60, led by Sberbank and Gazprom, which lost 1.6 percent and 3.4 percent, respectively.
“As soon as oil finds a bottom, the ruble will do the same and might even recover considerably,” Vladimir Osakovskiy, chief economist for Russia at Bank of America Corp. in Moscow, said by e-mail. “The bottom is yet to be found.”