Putin Turns Up Heat on Ruble Before Central Bank Has Its Say

Not content to wait for the central bank to deliver another dose of monetary easing this week, President Vladimir Putin is making clear Russia still has tools to shape the exchange rate to its liking.

At a meeting with entrepreneurs in the Yaroslavl region on Tuesday, Putin said the government is looking for “market-based measures” to affect the ruble, monitoring what he deemed as the “key” issue of its stability “practically on a daily basis.” While couched in terms of keeping the currency steady, the comments were enough to send the ruble into a steeper decline.

“It’s clear that he has to address the concerns of business,” Dmitri Petrov, a trader at Nomura International Plc in London, said by email. “Market-based measures are a broad term and could involve additional FX buying or more aggressive easing or asking banks to repay the central bank’s dollar repo financing quicker, or all together.”

Gains in the ruble already prompted the Finance Ministry to start purchases of foreign exchange in February, accompanied by efforts of some officials to talk down Russia’s currency. But the central bank, which shifted to a free float in late 2014, has pledged to avoid interventions unless the ruble’s swings threaten financial stability. It’s forecast to continue easing at a meeting on Friday with a quarter-point reduction in its key interest rate.

“We view the statement as a verbal intervention against the ruble, as it reiterates the authorities’ negative perception of a strong ruble,” Vladimir Osakovskiy, chief economist for Russia at Bank of America Corp. in Moscow, said in a report. “This, we think, increases the likelihood that the central bank could also decide to resume its FX purchases in an attempt to stabilize the ruble during its next policy meeting on Friday.”

The Bank of Russia, absent from the currency market since 2015, will step back in this year to replenish its reserves, according to 58 percent of respondents in a Bloomberg survey this month.

The ruble extended declines after Putin’s comments, depreciating as much as 0.7 percent, and headed for its biggest decline in more than two weeks on Wednesday. It was 1 percent weaker at 56.7450 against the dollar at 3:06 p.m. in Moscow. Stabilizing oil prices and elevated real interest rates have made it one of the top performers in 2017 with a gain of more than 9 percent.

‘Fundamental’ Level

Speaking with reporters after Putin’s meeting with the government on Wednesday, Industry Minister Denis Manturov put the ruble’s “fundamental” value at 58-59 versus the U.S. currency, with a stronger level leaving domestic producers at a disadvantage. For farmers, a range of 60-65 is better, according to Agriculture Minister Alexander Tkachev. The present exchange rate means agricultural exports may fall $3 billion short of this year’s plan, he said.

“We understand the concern of the central bank, the suppression of inflation and other factors,” Tkachev said. “But as we see it, a balance must be preserved.”

Responding to concern by a businessman that the ruble is threatening to get so strong near 55 against the dollar it could hurt his company’s exports, Putin had to tread carefully to avoid saying the central bank’s free float is in question. His spokesman on Wednesday reiterated the president won’t make his view of the exchange rate public, declining to comment on what market tools can be used.

Say No More

“I’m just afraid to say too much to cause any harm,” Putin said. “Without cameras, I would have answered you in greater detail, with more specifics. But for now I’ll stop here.”

Despite standing by the Bank of Russia’s management of the currency, Putin is refusing to put the issue of intervening in the market to rest. But with demand for the ruble already set to wane after a period of tax payments, ING Groep NV cautioned against giving too much weight to the president’s statement.

“It is natural for the ruble to turn weaker now, but we do not expect any dramatic move unless the external backdrop deteriorates,” said Dmitry Polevoy, an economist at ING in Moscow. “We would see Putin’s words as only a trigger for some natural ruble correction after staying surprisingly resilient to the oil price drop.”

— With assistance by Ksenia Galouchko, Vladimir Kuznetsov, and Andrey Biryukov

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