Tripwire for Bank of Russia Seen Closer as Oil Sinks Rubleby and
Ruble at 90 a dollar may trigger interventions, economists say
Central bank hasn't sold currency since floating ruble in 2014
The ruble is fast descending toward the danger zone that may trigger the first foreign-currency sales by the Russian central bank in more than a year, according to a survey of economists.
The Russian currency would need to weaken about 10 percent to 90 against the dollar for the central bank to step in, according to the median of 15 analysts polled by Bloomberg. Two respondents put the threshold at 80, which the ruble already breached on Wednesday for the first time. Currency sales in support of the ruble were the likeliest course of response for the Bank of Russia, followed by verbal interventions and an emergency interest-rate increase, the economists said.
Oil’s drop of about 26 percent this year is heaping pressure on the central bank, which has pledged to avoid interventions unless the ruble’s swings threatened financial stability. The ruble is the worst performer in emerging markets this year, threatening to rekindle inflation that’s slowed for four months and putting further strain on an economy at risk of its longest recession in two decades.
“The central bank may not be able to tolerate for much longer the rapid pace of the ruble’s depreciation, which after all will have negative implications by slowing down the disinflationary process,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London. “The risk of a verbal intervention followed by direct intervention will continue to rise if the ruble-dollar rate maintains its upside momentum and extends its gains beyond yet another psychological barrier of 80.”
The Russian central bank sees no grounds yet to intervene in the currency market, Governor Elvira Nabiullina said in an interview Wednesday in Moscow.
“We’ll intervene only if we see risks to financial stability,” she said. “There aren’t such risks now.”
The lifting of international sanctions on Iran has helped move the correlation between Brent and the ruble toward its strongest since October. The currency slumped to an all-time low on Wednesday, weakening as much as 3.6 percent to 81.493 against the dollar.
“Only in a situation of drastic deterioration and market panic would we expect strong and decisive action by the central bank,” said Andreas Schwabe, an economist at Raiffeisen Bank International AG in Vienna. “As long as oil remains in a downward trend, we don’t see strong action by the central bank in support of the ruble, for example large-scale FX reserve sales, as it would be likely costly and with limited effect to swim against the tide.”
Russia relies on oil and natural gas for almost half its budget revenue and collapsing crude prices have weakened the ruble more than 9 percent versus the dollar this year, the most among developing nations. The central bank, which responded to the currency crisis a year ago with an emergency 6.5 percentage-point rate increase in the middle of the night, hasn’t sold foreign exchange since allowing the ruble to float freely in December 2014.
“It’s likely that monetary authorities will try to apply the least serious and distorting measures first,” said Sergey Narkevich, an analyst at Promsvyazbank PJSC in Moscow. “And only in case of a precipitous fall of the ruble value and a subsequent substantial increase in risks to the financial system will they use an emergency rate hike or install capital controls.”
Bank of Russia First Deputy Governor Ksenia Yudaeva said Thursday that the regulator doesn’t “completely” rule out a rate increase as it looks to meet its 4 percent inflation target by the end of next year. Annual price growth decelerated to 12.9 percent in December after reaching a 13-year high of 16.9 percent in March. The central bank has held its benchmark at 11 percent since July after five rate cuts last year.
“The Bank of Russia is walking on a knife’s edge, needing to stem inflation, while at the same time allowing the ruble to depreciate gradually with oil to support federal government budget revenue,” Per Hammarlund, the chief emerging-markets strategist at SEB AB in Stockholm, said by e-mail. “Unless households start selling rubles in panic as in December 2014, the central bank is unlikely to intervene heavily.”