Ruble Weakens to Seven-Month Low, Breaching Intervention Zone

The ruble weakened for the fourth day, dropping beyond the level at which the central bank may intervene to support the currency as oil retreated.

The ruble slid 0.1 percent against Bank Rossii’s dollar-euro basket to 35.7296 by 7 p.m. in Moscow, the lowest level since early September. The Russian currency declined 0.1 percent against the dollar to 31.6625.

Oil, Russia’s main export earner, sank 1.9 percent in New York to $92.66, extending yesterday’s 2.8 percent decline. Crude dropped as weekly jobless claims in the U.S. rose to the highest level since Nov. 24 and European Central Bank President Mario Draghi said risks remain to the region’s economy.

“Speculators may cool down as the basket approaches the central bank’s intervention level,” Dmitry Polevoy, ING Groep NV’s chief economist for Russia, said in a note to clients. Retreating oil prices are pressuring the ruble because the “next taxes are still far away,” he added. The next tax period starts April 15.

Bank Rossii may buy as much as $70 million of rubles to curb excessive currency declines at a level beyond 35.65 rubles to the basket, Andrei Mishko, foreign exchange and interest-rate derivatives trader at MDM Bank, said by phone.

“There were people closing longs in the basket, because at this level some people prefer to take profits,” he said. “As we get back to the central bank’s inaction zone, with the neutral or negative external background, it’s a reason to buy the dollar or the basket again.”

‘Feeding Panic’

The central bank reports its foreign exchange market interventions with a two-day lag. The last time the regulator intervened in order to shore up the ruble was in November, when it bought 1.71 billion rubles ($54 million), Bank Rossii data show.

The ruble weakened 1.2 percent against the basket yesterday, the strongest drop since July, as oil fell and Finance Minister Anton Siluanov said the government may start foreign currency purchases on the open market in the second half of the year.

The Finance Ministry hasn’t provided enough detail on the new mechanism, which may start next quarter, Vladimir Kolychev, chief economist at OAO Rosbank, said in an e-mailed note to clients. Market participants price in “the most unfavorable scenarios” and a “lack of details feeds the panic on the market,” he said.

Currently the Ministry converts its rubles in the central bank at the regulator’s official rates. The transfer of exchange operations onto the open market creates a strong source of rubles, which is taken negatively by market players and “creates a shock on the forex market,” Kolychev said.

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