Putin Is All Talk to Ruble Bears as Rout Deepens: Russia CreditVladimir Kuznetsov and Anna Andrianova
President Vladimir Putin’s bid to intimidate traders who are betting against the ruble failed almost immediately, just like most other attempts this year by Russian officials to sway the market with public comments.
The ruble slid as much as 3.3 percent from the start of Putin’s annual address to Parliament yesterday in Moscow, approaching the all-time low, even as he vowed “harsh” measures to defeat speculators betting against the currency. Analysts said the central bank, which spent at least $2.6 billion intervening this week, needs to raise interest rates and commit more foreign-exchange reserves to stem the losses.
“Putin intervened verbally reminding the market that the central bank of Russia has instruments to fight speculators,” Piotr Matys, a currency strategist at Rabobank International in London, said by message yesterday. It “will not prove sufficient unless the central bank actually uses all tools at its disposal,” he said.
The Bank of Russia said today it sold $1.9 billion on Dec. 3 in its second intervention since moving to a free float last month. Authorities are seeking strategies that will slow the ruble’s slide as oil’s drop into a bear market and sanctions over the conflict in Ukraine spur the biggest capital outflows from the nation’s assets in six years.
The currency has “substantially” deviated from its fundamental value, the Bank of Russia said yesterday, reiterating that it’s prepared to intervene in the currency market, even as ruble weakness protects state revenue from Brent crude’s 38 percent slump this year.
Putin asked the government and central bank to work together to defend the ruble, without elaborating on how they would collaborate. Finance Minister Anton Siluanov also appealed to state-controlled exporters to convert more of their foreign revenue into the local currency.
The ruble, which retreated 2 percent yesterday, climbed 1.4 percent to 53.5185 per dollar by 12:52 p.m. in Moscow. The currency gained in early trading yesterday after the central bank announced a plan to reduce the rate it charges lenders for dollars in repurchase auctions to help ease the cash crunch.
The central bank may have sold more than $800 million today, according to Aram Kazaryan, FX and rates sales trader at MDM Bank in Moscow.
“Intervention amounts are getting more sizable and have slowed the decline of the ruble,” Bernd Berg, a London-based strategist at Societe Generale SA, said by e-mail today. “But at the same time there is complete panic in parts of the financial system. With panic spreading the central bank has to come in with a massive rate hike, FX interventions alone might not be able to stabilize the situation.”
Policy makers may be preparing to raise interest rates by 348 basis points in the next three months, according to forward-rate agreements tracked by Bloomberg. The Bank of Russia next meets on rates on Dec. 11.
This isn’t the first time actions by Russian authorities struggled to prop up the ruble. Central bank Governor Elvira Nabiullina spurred gains for only a day when she said Nov. 10 she would limit liquidity to prevent speculators from using central bank cash “for games on the currency market.” The ruble registered its 10th consecutive week of declines that week.
It also rallied for only two minutes after the central bank ratcheted up the benchmark interest rate 1.5 percentage points to 9.5 percent on Oct. 31.
For a “sustained and durable recovery” in the ruble, “the underlying drivers” of the oil price and sanctions risks must abate, Morgan Stanley economists wrote in a note yesterday. They predict the Bank of Russia will raise borrowing costs by 200 basis points this month.
While threatening to stoke inflation already at a three-year high of 9.1 percent, the weaker currency helps offset the drop in oil by boosting proceeds of energy exporters in local terms. The government budget surplus surged 85 percent to in the first 10 months of 2014.
“The fact that the authorities have so far resisted intervening in the foreign-exchange market suggests that a weaker currency has become an increasingly important part of the government’s strategy for dealing with lower oil prices,” Neil Shearing, the chief emerging-markets economist at Capital Economics in London, said yesterday in an e-mailed note.
Market players are testing Russia’s willingness to defend the currency. Derivatives traders are close to the most bearish in almost six years on the ruble, according to risk-reversal data on Bloomberg.
“Rather than finding an equilibrium level, the market will now seek new levels that will push the central bank to act,” according to Natalia Orlova, the Moscow-based chief economist at OAO Alfa-Bank.