Ruble Falls Fifth Day as Russia Efforts Damp Carry-Trade Appeal

The ruble weakened for a fifth day as Russian government and central bank efforts to stem the currency’s gain damped its carry-trade appeal.

Russia’s exchange rate declined 0.1 percent to 50.0970 per dollar by 7:09 p.m. in Moscow. While a 370 billion rubles ($7.4 billion) corporate tax-payment deadline on Monday drove the currency up as much as 0.5 percent earlier, the ruble reversed gains amid growing pressure from policy makers to slow this year’s 21 percent appreciation.

The Bank of Russia said today it was proceeding with a $1.4 billion auction of four-week repurchase agreements, while canceling the 12-month tranche for a second week. Banks have used cash from these facilities in recent months in part to take advantage of the higher carry offered by ruble assets, leading to speculation policy makers would curb the supply of shorter-maturity repos to make the trade less appealing.

“Another $200 million of interventions confirmed by the central bank, plus the canceling of today’s 12-month foreign currency repo is eating away at the attractiveness of ruble,” Tom Levinson, the chief strategist for foreign currency and interest rates at Sberbank CIB, the investment arm of Russia’s largest lender, said by e-mail.

The ruble’s advance is hurting export earnings in local-currency terms as Russia’s fiscal deficit widens. The government and central bank have said in the past two weeks that they are buying foreign currencies.

While that helped drive the ruble lower last week for the first time since the five days ended May 3, carry-trade returns for Russia’s currency have also been the best globally for the fourth month in May, gaining 3.9 percent.

Carry Trade

The central bank reduced benchmark borrowing costs three times this year to 12.5 percent, still leaving it five percentage points higher than rates in Turkey, which offered this month’s second-best carry trade.

The Bank of Russia first introduced the dollar repo in October to give companies blocked out of global debt markets by sanctions an alternative pool of cash to cover external debt payments. In recent months, banks drew on the facility instead to invest in higher-yielding Russian assets, prompting policy makers to raise the cost of borrowing and limit the supply.

Yields on five-year government bonds were unchanged at 10.61 percent on Monday, reducing the decline this month to 40 basis points. The Micex Index of equities fell 0.7 percent, ending a two-day advance.

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