Ruble Weakens as Credit Suisse Sees Currency Sales to Stem Drop

  • Ministries asked to identify areas for savings: Vedomosti
  • `Demand' for foreign currency in Russia Declining: Rosbank

The ruble weakened with oil, prompting Credit Suisse AG to predict the state may resume foreign-currency sales to stem further losses and support the budget.

The Russian currency declined 0.2 percent to 76.344 per dollar by 6:30 p.m. in Moscow. Crude retreated 0.3 percent to $31.46 a barrel, still near the lowest on a closing basis since April 2004, while government bonds fell, sending the yield on five-year notes up 22 basis points to 10.58 percent and extending an increase on Monday that was the biggest since August.

The government plans to cut fiscal spending by another 10 percent in 2016 as oil trades below the budget forecast of $50 per barrel, Vedomosti reported on Tuesday, saying ministries have been given until Jan. 15 to determine what spending they will reduce. Having the central bank convert “foreign assets” from the Reserve Fund into rubles to finance budget spending would help bolster the local currency, Credit Suisse said.

“Such interventions may help to contain the panic in the currency market before the government reveals the details of its fiscal spending cuts,” Credit Suisse economist Alexey Pogorelov said in an e-mailed report.

Ruble Link

The spending cuts are needed because the ruble hasn’t kept up with the drop in oil, meaning the government collects less of the local currency from energy exports.

Societe Generale SA’s Russian unit Rosbank PJSC said Tuesday the “link” between the price of oil and the ruble is weakening as “demand for foreign currency within the country is declining."

Households are reluctant to buy foreign exchange for savings at these levels, “while wholesale purchases are down on the back of low demand for imported goods," said Evgeny Koshelev, an analyst at Rosbank in Moscow.

Russia’s 2016 budget anticipates a fiscal deficit of 3 percent of gross domestic product with oil at an average of $50 per barrel. The budget also envisions borrowing of 300 billion rubles ($3.9 billion) on the local market on a net basis compared with 80 billion rubles last year.

The Micex index of stocks rose 0.7 percent to 1,694.

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