Ruble Sinks to Record as Auction Axed After Recession Warning

The ruble slumped to a record for a fourth day and the government scrapped a planned bond sale as crude fell and the Economy Ministry said Russia may enter its first recession since 2009 next year.

The currency plunged 5.4 percent to 53.9795 against the dollar by 6:54 p.m. in Moscow after weakening to as low as 54.0155 earlier. The three month MosPrime interbank rate climbed one basis point to 12.75 percent, the highest since May 2009.

Russia may sink into recession in the first quarter, Deputy Economy Minister Alexei Vedev said, as the conflict in Ukraine and plunging oil prices choke economic growth in the world’s biggest energy exporter. The Finance Ministry said it won’t offer ruble debt tomorrow, citing “unfavorable” markets.

“Russian assets are under heavy selling pressure with the ruble in free-fall and rates shooting up,” Bernd Berg, a London-based strategist at Societe Generale SA, said by e-mail after the cancellation.

Traders at banks including OAO Alfa Bank and National Standard Bank said policy makers may have intervened to slow the ruble’s drop yesterday, the first currency sales since they moved to a free float last month. While getting rid of most interventions, the Bank of Russia on Nov. 5 said it reserved the right to sell foreign currency unannounced in the event of a threat to the country’s financial stability.

The central bank’s press service said it publishes intervention data with a two day lag, in response to a request for comment.

Liquidity Auctions

Russian banks sought 12 percent more cash than they took at central bank repurchase auctions for 2.8 trillion rubles ($53 billion) of seven-day funds and 70 billion rubles of deposit auctions offered by the Finance Ministry today.

Interbank rates are climbing as the Finance Ministry prepares its traditional end-of-year budget spending surge. That will see it reduce the cash it provides to banks using the deposit auctions from 1 trillion rubles at present to about 60 billion rubles by the end of the year, the ministry said in a statement on its website today.

The yield on the government’s 10-year ruble bonds rose three basis points to 10.78 percent, the highest level in five years.

Oil Pain

OPEC, the cartel that supplies about 40 percent of the world’s crude, left its oil-output target unchanged on Nov. 27, sending oil tumbling 13 percent in London last week. Brent crude fell 1.4 percent to $71.56 per barrel today.

“Oil price weakness clearly brings more pains for Russia compared to the current level of sanctions and the current level of geopolitical tensions,” Oleg Kouzmin, the chief economist for Russia at Renaissance Capital in Moscow, said by e-mail.

The ruble is forecast to average 49 per dollar next year, Vedev said. Net capital outflows are set to surge to $125 billion this year, more than the $100 billion predicted earlier, before slowing to $90 billion in 2015, he said.

“This is now an official recognition from the government that the economic environment will be worse than originally planned,” Ivan Tchakarov, Citigroup Inc.’s Moscow-based economist, said by e-mail. “This is adding to the gloom.”

While Russia canceled tomorrow’s bond auction, the ruble’s decline means the government is so far under little pressure to tap local debt markets. The drop in the exchange rate boosts revenue from exports in local-currency terms, helping to offset Brent’s slide.

Russia, which relies on oil and gas for about 50 percent of budget revenue, registered an 85 percent surge in its budget surplus in the first 10 months to 1.13 trillion rubles ($21 billion).

The dollar’s 14-day relative-strength index against the ruble was at 82.9, the highest since Oct. 29. A reading above 70 suggests to some traders that a reversal may be imminent.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE