More Ruble Intervention Ahead If Top Forecasters Right

If the top forecasters for the ruble are correct, last week’s intervention by the Russian central bank, the first since May, won’t be the last.

The currency will drop 2.9 percent from last week’s close to 41.10 per dollar by the end of 2015, said Alexander Morozov, chief economist for Russia at HSBC Holdings Plc, the most accurate forecaster for the pair in the past 12 months, data compiled by Bloomberg show. Danske Bank A/S, ranked second, sees a 4.2 percent decline in the next four quarters.

More weakness may be in store for the world’s worst-performing currency in the third quarter as U.S. and European sanctions over the crisis in Ukraine threaten to tip the Russian economy into a recession. Amid the selloff in the currency and bonds, Russian central bank sold the equivalent of 170 million rubles ($4.3 million) Oct. 1 in a bid to stem the decline.

“The story for the ruble is pretty much the same,” Vladimir Miklashevsky, a strategist at Danske, said in an interview in Moscow Oct. 3. “The economic picture is bleak without any major brightening ahead. The sanctions of course continue to weigh on sentiment.”

When the currency crosses the upper band of its range against a basket of dollars and euros, the central bank sells $350 million before shifting the boundary by 5 kopeks, according to official guidelines. The sanctions have driven the cost of swapping rubles for dollars to a record.

Band Raised

Policy makers moved the trading band 10 kopeks to 35.50-44.50 on Oct. 3, according to data from the central bank, which posts interventions for that day on Oct. 7.

Russia moved away from drawing on reserves to support the currency since the previous intervention on May 8 brought the total spent this year to $40 billion. Central bank Chairman Elvira Nabiullina widened the ruble’s trading band in August amid a push to adopt a free float by year-end.

“The central bank might step into the market again because the basket has reached the upper band,” Marcin Sulewski, an analyst at Banco Santander SA’s Polish unit, Bank Zachodni WBK SA, said by phone Oct. 3. “Interventions might halve or slow down the depreciation in the coming weeks.”

The currency weakened 1 percent to 39.9570 per dollar in Moscow on Oct. 3 and declined 0.3 percent to 44.4471 against the basket. The ruble was little changed versus the dollar today at 39.9500 as of 2:47 p.m. in Moscow after slipping below 40 for the first time on record earlier.

Further Weakness

While the economy continues to generate a current-account surplus, forecast by economists at almost $50 billion in the first nine months of the year, the money is not staying in ruble-denominated assets, Miklashevsky said. He expects net capital outflows of $150 billion this year, compared with $60 billion outflow for all of last year.

The ruble is bound to weaken further in the coming years “because our economy doesn’t produce goods that get more expensive,” Daria Isakova, an analyst at VTB Capital in Moscow, said by phone Oct. 3 “At the same time, we import goods that do get more expensive.”

Russia is the biggest global oil exporter. Half its revenue comes from the sale of oil and natural gas. Brent oil is trading at $91.93 per barrel in London, the lowest level since June 2012. Even with an average annual oil price of $90 per barrel, Russia’s balance of payments should be in equilibrium with the ruble at 40 per dollar, Isakova said, suggesting the short-term weakening potential for the ruble is limited.

‘Scariest Scenario’

“The scariest scenario for the ruble is if the people, the babushkas, go exchanging it into dollars,” Isakova said. For that to happen, the ruble “must fall -- strongly and sharply and that is not going to happen, because the central bank won’t let it,” she said.

Sulewski at Bank Zachodni, the third top dollar/ruble forecaster in the last 12 months, sees the ruble weakening to 40-41 by the end of the year on weak economic growth and negative investor sentiment prompted by geopolitical risks.

“Given the weak fundamentals of the Russian economy and the still unsolved conflict in Ukraine, predicting the recovery of the ruble is like catching a flying knife,” he said.

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