The ruble tumbled past 60 for the first time as traders tested Russia’s willingness to defend the currency amid an oil slump that’s pushing the economy toward recession.
The ruble weakened as much as 5 percent to 61.25 per dollar, pushing the Bank of Russia to sell foreign exchange to stem the slide, according to BCS Financial Group and MDM Bank. Three-month implied volatility for the currency, which traded 4.2 percent weaker at 60.7205 by 5:34 p.m. in Moscow, climbed to a six-year high. The yield on 10-year government bonds rose 11 basis points to 13.11 percent, the most since 2009.
Traders are pressing the Bank of Russia to buy more rubles to limit a selloff that has wiped out 19 percent of the currency’s value this month. Oil’s slide toward $60 a barrel in London and sanctions over the conflict in Ukraine are undermining confidence in Russian assets as evidence mounts that the economy is entering a recession. Industrial output fell the most in more than a year in November, data showed today.
“To a large extent it’s a foreign outflow, triggered by a reconsideration of Russia’s long-term prospects,” Dmitry Dudkin, the head of fixed-income research at Uralsib Financial Corp. in Moscow, said by e-mail. “People start pricing a long period of low oil prices. And in these circumstances, Russia doesn’t look like a place where one should invest money, even without sanctions.”
The economy of the world’s largest energy exporter is set to shrink 0.8 percent in 2015, the government said this month, in what would be its first recession since 2009. The ruble has retreated 46 percent this year, the most among global currencies after Ukraine’s hryvnia.
Outflows Accelerate
Bonds and stocks are also underperforming developing-country peers this month. While the dollar-denominated RTS Index has declined 24 percent since Nov. 30, ruble bonds slid 21 percent, according to the Bloomberg Emerging Market Local Sovereign Index.
Russia is set to register $125 billion of capital outflows in 2014, the most since 2008, according to Economy Ministry forecasts and central-bank data.
Policy makers failed to stop the ruble’s depreciation this month with more than $6 billion of interventions and a 100 basis-point interest-rate increase. The central bank sold at least $350 million to bolster the ruble today, according to Luis Saenz, the head of equity sales and trading in London for Moscow-based BCS.
More Interventions
“I expect the ruble to tumble further, but would expect the central bank comes into the market to defend the ruble more forcefully via interventions once it breaches 60,” Bernd Berg, a London-based emerging-market strategist at Societe Generale SA, said in e-mailed comments before the currency crossed that threshold. “The central bank might be concerned about the speed of decline in recent days.”
The Bank of Russia spent more than $80 billion supporting the ruble this year, helping drain foreign-currency reserves to a five-year low of $416 billion.
Brent oil, which rose today for the first time in four days, remains 43 percent weaker in 2014. Russia derives about 50 percent of its budget revenue from oil and natural gas industries. While the weaker currency helps offset a drop in oil earnings, it’s also stoking inflation that crossed 9 percent for the first time since 2011 last month.
The three-month MosPrime interbank rate climbed 217 basis points this month to 14.84 percent. The Bank of Russia canceled a 700 billion-ruble ($11.6 billion) auction of three-year funding after receiving no bids. Banks borrowed less than 50 percent of the $10 billion offered in a separate foreign-exchange sale.
“The market is pushing at an open door with the central bank so hesitant” to intervene, Tom Levinson, the chief currency and interest rates strategist at Sberbank CIB in Moscow, said by e-mail. The “lower ruble and steady oil is normally a trigger for them to intervene, but they are quiet,” he said.
By Vladimir Kuznetsov and Ksenia Galouchko: Bloomberg
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