Ruble Weakens Third Day as Russia Scales Back Currency Support

The ruble weakened for a third day as Russia’s central bank said it will scale back how much it intervenes in the currency market. Bonds fell.

The ruble depreciated 0.3 percent to 40.3501 against the Bank of Russia’s target basket of dollars and euros by 6 p.m. in Moscow, when the central bank stops its market operations. The yield on local-currency debt maturing February 2027 rose three basis points to 8.75 percent, the highest level this month.

The central bank wants to “further increase exchange-rate flexibility of the ruble in the context of the transition to inflation targeting,” the regulator said in a statement today. The plan comes after the exchange rate recovered 2.3 percent against the dollar since the end of April, the most among 24 emerging-market currencies monitored by Bloomberg, trimming this year’s drop to 5.7 percent.

“This is another step in the direction of a freely flexible ruble,” Tom Levinson, chief foreign-exchange and rates strategist at Sberbank CIB in Moscow, said in e-mailed comments. “By extension, the current, less-than-positive sentiment toward the ruble can be more fully reflected in the price action observed.”

The central bank widened the corridor within which it will not intervene to 5.1 rubles, up from 3.1 rubles previously. The regulator also lowered the amount it will sell per day to smooth out currency fluctuations by $100 million, to $200 million at the upper range of the corridor and zero at the regular range.

Ukraine Tension

The currency lost 0.2 percent against the euro today to 47.1350 and traded 0.5 percent lower at 34.7975 per dollar.

The ruble has come under renewed pressure this week, dropping for the past three days, as turmoil worsened in Ukraine. Russia has amassed 38,000 troops at its borders and continues to supply arms and personnel to rebel forces in the east of the country, Ukraine’s National Security Council chief Andriy Parubiy said yesterday.

Rebels shot down a transport plane in mainly Russian-speaking east Ukraine on June 14, killing 49 servicemen in the deadliest attack since separatists seized government buildings on April 6. The U.S. and European Union have warned Russia faces further sanctions if concrete steps aren’t taken to de-escalate the conflict.

The central bank’s move “added nervousness” to investor concern about global instability, Sergey Fishgoyt, deputy head of foreign-exchange trading at OAO Bank Otkritie, said by e-mail.

The bank plans to adopt full inflation targeting in 2015, including by adopting a freely floating currency. It currently targets currency trading in a seven ruble-wide range against the basket, which has fluctuated from 36.40 rubles to 43.40 rubles since May 2.

Under the new guidelines, the regulator will sell $200 million when the ruble trades within the 42.45-43.40 corridor versus the basket. If the ruble moves beyond this, the central bank will shift the corridor up or down by 5 kopeks each time it accumulates $1 billion in interventions, down from $1.5 billion previously.

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