Russia’s $50 Billion Repo Pledge Fails to Halt Ruble Drop on Oil

The ruble slid to a record as oil sank and a global market rout overshadowed the Bank of Russia’s pledge of $50 billion to ease a foreign-currency shortage.

The currency slumped 1.3 percent to 46.1342 against the dollar-euro basket by 6 p.m. in Moscow, when the central bank ends its daily market operations. The ruble temporarily pared its drop after policy makers said they will offer as much as $1.5 billion of four-week repurchase agreements at its debut auction on Oct. 29.

The foreign-exchange repos “will smooth, but not stop the weakening as the macro and geopolitical environment remain unchanged,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail. “It is impossible and unwise to swim against a falling oil price.”

Russia is grappling for ways to ease a local shortage of hard currency exacerbated by sanctions over the conflict in Ukraine. The world’s biggest energy exporter is eating into its $452 billion reserves as oil slumps to a four-year low in London and the penalties block companies from U.S. and European debt markets. Markets around the world slumped today on concern a financial crisis is returning to Europe and as Ebola’s spread starts to affect investor psychology.

The central bank said today it spent $2.3 billion intervening in the currency market on Oct. 14. That brings this month’s total to about $13 billion, including today, ING’s Russia chief economist Dmitry Polevoy said by e-mail.

Deposit Auctions

The ruble had its biggest one-day gain yesterday versus the dollar in three weeks as Russia’s Finance Ministry said it would start deposit auctions to give banks access to an additional $3 billion. The central bank repos to be auctioned this month will give banks access to funds at a minimum rate of 225 basis points above the London Interbank Offered Rate.

“We are back to tracking sliding oil prices,” Vladimir Osakovskiy, the chief economist for Russia at Bank of America Corp. in Moscow, said in e-mailed comments. “The rebound yesterday on the back of upcoming support measures, announced by the Finance Ministry, proved to be short-lived, as these measures are yet to be implemented and the conditions for these are yet to be outlined.”

Russian companies are facing a cash crunch as they search for ways to meet $55 billion of debt maturities through December, according to central bank estimates. Brent crude fell for a fourth day, losing 0.9 percent to $83 per barrel today, the lowest level in almost four years.

The yield on 10-year government bonds rose six basis points to 9.91 percent and Russia’s benchmark Micex equity index fell for a second day, losing 1.4 percent.

Solid Firepower

The premium to swap rubles into dollar cash flows fell nine basis points to negative 272, indicating traders are less willing to pay a record premium to secure hard currency.

The interest rates on the central bank’s repo auctions “are not very attractive,” Oleg Kouzmin, an economist at Renaissance Capital Ltd. in Moscow, said by e-mail today. Still, in the medium term, “an instrument with $50 billion firepower looks solid and might eventually cap ruble depreciation at some stage,” he said.

The repo program will run through the end of 2016, Bank of Russia said in a statement on its website today. It will offer funds for 28 days on Wednesdays and for seven days on Thursdays.

Yesterday’s ruble gains enabled the bank to slow the pace at which it lowers the floor of its basket to 25 kopeks at 45.95, compared with a 35 kopek move a day earlier, data on its website showed today. The central bank releases its intervention data with a two-day lag.

The monetary authority, which has said it plans to adopt a free float by next year, currently allows the currency to trade within a 9-ruble-wide corridor. When the ruble weakens past the boundary, the bank spends $350 million to defend it before shifting the band by 5 kopeks, according to its guidelines. It repeats the process each time the currency falls by 5 kopeks.

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