Ruble Gains as Central Bank Pledges to Help Cover Foreign Debt

  • Loans to cushion hit from sanctions as $61 billion comes due
  • Rabobank strategist says moves are `positive' for currency

The ruble strengthened after the Bank of Russia said it would back borrowers saddled with $61 billion of external debt payments over the next four months and locked out of foreign markets by sanctions over Ukraine.

Central bank Governor Elvira Nabiullina said Wednesday policy makers will renew the 12-month loan program, suspended in June. The ruble led a comeback in emerging-markets today, rallying the most of 24 currencies as it gained 3.2 percent to 67.763 per dollar at 5:45 p.m. in Moscow.

The Bank of Russia steps up support after the ruble drops to record low
The Bank of Russia steps up support after the ruble drops to record low

Steps by the central bank to cushion the impact of sanctions on foreign-currency borrowing will provide a respite to the ruble, Piotr Matys, a London-based emerging markets foreign-exchange strategist at Rabobank, said by e-mail. Losses of 23 percent in the past three months make it the biggest decliner among emerging-market currencies during the period.

"Any measures that would increase U.S. dollar liquidity ahead of upcoming debt repayment would be positive, especially if" the ruble begins to weaken again versus the dollar, Matys said.

Under the repurchase agreement provided by the central bank, borrowers pledge securities in exchange for loans. On Aug. 10, the Bank of Russia said that while the total amount of external debt due through the year is $61 billion, payments could end up being as little as $35 billion, because the rest is owed to affiliates and is likely to be refinanced or extended.

The Bank of Russia is ready to increase foreign-currency lending to banks if needed and doesn’t plan to reduce it, considering changes in the external economic conditions and the currency market situation, its press service said by e-mail on Thursday. The central bank will be flexible in selecting its method of refinancing one-year foreign-currency loans for banks, and is weighing a resumption of one-year foreign-currency repurchase auctions as well as increasing monthly and weekly auction limits, it said.

Natalia Orlova, chief economist at Alfa Bank JSC, said that the direction of oil prices eclipses central bank reassurances on foreign-currency loans. It’s "good only to smooth market volatility, but will not reverse the trend if the oil price decline continues," Orlova said in a note.

Crude oil, which along with natural gas brings Russia half of its budget revenue, gained 4.6 percent to $45.12 per barrel in London trading, recovering from a six-year low earlier this week.

The yield on Russian government five-year bonds declined 15 basis points to 11.92 percent. The Micex index of stocks rose 1.9 percent to 1,692.67.

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