Russia to Dip Into Wealth Fund as Ruble Crisis Pressures Economy

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Russia will unseal its $88 billion Reserve Fund and use it to acquire rubles, the government’s latest effort to stem the country’s worst currency crisis in almost 17 years and limit its effects on the ailing economy.

“Together with the central bank, we are selling a part of our foreign-currency reserves,” Finance Minister Anton Siluanov said in Moscow today. “We’ll get rubles and place them in deposits for banks, giving liquidity to the economy.”

Russian officials are running out of options to stem the ruble’s plunge as oil prices below $50 a barrel and sanctions imposed over the conflict in Ukraine push the country to the brink of recession. Policy makers have already raised interest rates by the most since 1998 and introduced a 1 trillion-ruble ($15 billion) bank recapitalization plan.

The risk for policy makers is that using the reserves to fight the ruble’s slide will worsen its standing with investors. Economy Minister Alexei Ulyukayev said today there’s a “fairly high” risk that the country’s credit rating will be cut below investment grade for the the first time in a decade.

“This should be viewed just as the continuation of the desire to present a united front in dealing with events in the foreign-currency market,” Ivan Tchakarov, chief economist at Citigroup Inc. in Moscow, said by e-mail.

Ruble ‘Undervalued’

Russia may convert the equivalent of as much as 500 billion rubles from one of the government’s two sovereign wealth funds to support the national currency, Siluanov said, calling the ruble “undervalued.” The Finance Ministry last month started selling foreign currency remaining on the Treasury’s accounts.

The entire 500 billion rubles or part of the amount will be converted in January-February through the central bank, according to Deputy Finance Minister Alexey Moiseev. The Bank of Russia will determine the timing and method of the operation.

The ruble, the world’s second-worst performing currency last year, weakened for a fourth day, losing 1 percent to 65.93 against the dollar by 6:28 p.m. in Moscow. It trimmed a drop of as much as 2 percent after Siluanov’s comments.

“This is a positive signal to the market, but the amount offered isn’t enough to support the ruble since fundamental and political factors continue to pressure the currency,” Vitaly Isakov, a money manager at Otkritie Asset Management in Moscow, said by e-mail. Still, “if the oil price rebounds, such actions by the Finance Ministry could support or speed up the positive move in the ruble.”

Coordinated Measures

The ruble’s continued slump this year underscores the fragility of coordinated measures by Russia’s government and central bank that steered the ruble’s rebound from a record-low intraday level of 80.10 on Dec. 16.

OAO Gazprom and four other state-controlled exporters were ordered last month to cut foreign-currency holdings by March 1 to levels no higher than they were on Oct. 1. The central bank sought to make it easier for banks to access dollars and euros while raising its key rate to 17 percent, the emergency level it introduced last month to arrest the ruble collapse.

Today’s announcement “looks ruble-supportive, as together with state-driven selling from exporters it would support FX supply on the market,” Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, said by e-mail. “Also, it will be helpful for banks, while there might be some negative effects related to extra money supply and risks of using some of the money on the FX market for short-term speculations.”