Ruble Drops to Record as Russia Sanctions Fuel Dollar Shortage

The ruble fell to a record for a fourth day as sanctions over the Ukraine crisis exacerbated a foreign-currency shortage in Russia, while the government canceled its ninth straight debt sale. Stocks advanced.

The exchange rate tumbled 0.9 percent to 43.8454 against the central bank’s dollar-euro basket at 7:10 p.m. in Moscow, depreciating for a seventh day to a record low. That’s within 56 kopeks of 44.40, the level that would trigger the central bank to intervene. The Micex Index climbed 1.6 percent to a two-month high, led by OAO Sberbank, the nation’s biggest lender, which was named under expanded U.S. sanctions last week.

Foreign-currency liquidity has come under pressure as the European Union and U.S. imposed new penalties to curtail access of Russian companies to their debt markets. The one-week dollar-ruble swap rate traded at the widest discount to the central bank’s main interest rate in six months today, signaling traders are willing to pay a premium for the U.S. currency.

“Sanctions and closed access to foreign-exchange liquidity from the West” is feeding demand for dollars, Dmitry Polevoy, the chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, said in an e-mailed note. “The market is now targeting the upper boundary of the ruble corridor at 44.40.”

The ruble, which has lost 15 percent of its value against the U.S. currency this year, depreciated as much as 1.4 percent to 38.9300 per dollar, before trading at 38.7145. It lost 1 percent versus the euro.

Dollar Shortage

The implied yield on a one-week swap fell for a third day to 6.43 percent, taking the spread over the central bank interest rate to minus 157 basis points, compared with minus 105 basis points yesterday.

Foreign-exchange liquidity has “virtually dried out,” with volumes sinking to about $100 million per day, compared with $1 billion to $2 billion previously, according to Natalia Orlova, the chief economist for OAO Alfa Bank in Moscow.

The currency pared declines after Deputy Finance Minister Alexey Moiseev said the ministry and central bank were discussing ways to alleviate the “structural” shortage of foreign currency in the market.

“An injection of dollar liquidity by the central bank could push the ruble higher, back to 38 versus the dollar,” Moscow-based Sberbank CIB analyst Iskander Abdullaev said by e-mail.

Auction Pulled

Companies have $22 billion in dollar-denominated payments to make in September and local banks are “anticipating demand for hard currency from retailers and accumulating additional dollar liquidity,” Abdullaev said.

“The geopolitical background remains unstable,” Dmitriy Gritskevich, an analyst at OAO Promsvyazbank, said in an e-mailed note. The ruble may move “without any serious obstacles” straight to the upper limit of the dollar-euro basket, he said.

Government bonds due in February 2027 climbed, sending the yield down four basis points to 9.66 percent, trimming the increase since President Vladimir Putin started his incursion into Ukraine’s Crimea region in March to 130 basis points. The Finance Ministry cited “unfavorable” market conditions today for pulling a domestic bond auction.

Tougher penalties were announced last week even amid a cease-fire between pro-Russian separatists in eastern Ukraine and the government in Kiev, stoking concern Russia would retaliate with measures of its own and deepen the six-month crisis.

Stocks rose after Ukraine’s parliament approved a law giving special status to two regions controlled by pro-Russian separatists. That boosted optimism the crisis may ease and sanctions would be lifted, Vadim Bit-Avragim, who helps oversee about $4.1 billion at Kapital Asset Management LLC in Moscow, said by phone.

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