Russia Eases Pressure on Banks With Rules Cutting Dollar Demand

Russian authorities eased accounting rules to curb banks’ need for dollars, seeking to ease concern the ruble’s plunge will lead to a full-blown financial crisis.

The ruble and stocks rallied after the Bank of Russia announced the measures. They came a day after the central bank’s 1 a.m. interest-rate increase and a freefall of as much as 19 percent in the currency, prompting speculation of a potential meltdown in emerging markets.

The package of measures allows banks to use the third-quarter exchange rate in valuing risk-weighted assets and imposes a moratorium on mark-to-market accounting. Russian companies face about $20.3 billion in non-ruble loan and debt repayments before the end of March, according to data compiled by Bloomberg. The ruble has dived 35 percent this quarter.

“The most important measure is this use of third-quarter valuation for risk-weighted assets,” Natalia Berezina, banking analyst at UralSib Capital, said by phone. “This is a big boost as some banks would fail to meet central bank regulatory capital ratios at their current levels.”

The ruble strengthened 9.4 percent against the dollar, paring its decline for the year to 47 percent. The ruble-denominated Micex stock index fell 2.1 percent in Moscow, while the dollar-based RTS surged 14.2 percent.

The gains may enable President Vladimir Putin to continue to strike a confrontational stance as he holds his annual news conference tomorrow. The event comes at one of the most difficult moments of his 15-year rule. Oil prices are collapsing, finger-pointing among officials is breaking into the open, new sanctions over Ukraine are possible and the country is careening toward recession.

‘Moment of Truth’

“This is a moment of truth” for Putin, said Masha Lipman, an independent political analyst in Moscow. “It’s no longer possible to go on in the same fashion. The economy is tumbling. The time has come for a definitive choice, doing nothing won’t solve the problem.”

The interest rate increase to 17 percent from 10.5 percent will crush lending to households and businesses and deepen Russia’s looming recession, according to Neil Shearing, chief emerging-markets economist at London-based Capital Economics Ltd.

Many Russians are shielded from the scope of the crisis. State-run media outlets steered any criticism away from Putin and portrayed the government as ready to take firm action.

Folks are taking action too.

‘Into Abyss’

November retail-sales growth unexpectedly accelerated to the fastest in six months as people snapped up consumer goods on concern prices will rise further. Apple Inc. on Dec. 16 halted online sales there -- just three weeks after boosting the price of an iPhone 6 by about 25 percent to 39,990 rubles. The value of that iPhone sale when converted into dollars already has plummeted to about $633 from $847.

“There is a feeling that we are falling into an abyss,” said Elena Novgorodova, a 36-year-old manager at a chemical trading firm in Moscow. “It would’ve been easier if the ruble fell quickly as it did in 1998. I am trying to spend the money before it loses value.”

The central bank, which already drained $10 billion of its foreign-currency reserves this month on interventions, will probably need to spend another $70 billion to stem the slide, according to a survey of economists.

The ruble sank beyond 80 a dollar yesterday, a record low, as it became clear that the surprise 650 basis-point rate increase wouldn’t alter the currency’s course. It pared declines following comments from Economy Minister Alexei Ulyukayev, who denied speculation the government would impose restrictions to stop Russians from converting cash into dollars.

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