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Russia Currency Interventions Cross $3 Billion as Oil Slides

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IMAGE: Vladimir Tikhomirov, chief economist at BCS Financial Group in Moscow »


Russia’s currency interventions have exceeded $3 billion this month as a domestic dollar shortage and slumping oil prices batter the ruble.

The central bank sold $1.5 billion on Oct. 8, according to data released on its website today, the most for a single day since a $4.41 billion intervention that preceded the Crimea referendum to join Russia in March. According to a Bloomberg poll, the monetary authority dipped into reserves for another $1 billion or more yesterday to support the ruble.

The currency of the world’s biggest energy exporter suffered the world’s worst slide since June as U.S. and European sanctions make it harder for companies to refinance the nearly $55 billion of debt the central bank estimates is due through December. The cash crunch sent the premium traders pay to swap rubles into dollars to a record high, underscoring the pressure on the ruble as Brent oil slides to a four-year low and wagers for interest-rate increases approach a 2011 peak.

“The ruble will continue to weaken,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail. “The central bank won’t prevent it from declining, if the velocity is gradual enough.”

The monetary authority spent a total of $3.35 billion defending the currency since September, according to central bank data that exclude any interventions yesterday and today. The bank said it moved the upper band of its target dollar-euro basket by 15 kopeks to 45 yesterday.

Oil Drop

The ruble was trading 0.3 percent weaker versus the basket at 45.1376 by 10:47 a.m. in Moscow. It lost 0.3 percent to 40.2785 per dollar.

“The central bank is trying to protect the ruble from a sharp drop from the 40 rubles per dollar mark,” Vladimir Tikhomirov, chief economist at BCS Financial Group in Moscow, said by phone.

Brent fell below $90 a barrel for the first time in more than two years yesterday, dimming the outlook for Russia’s budget revenue, about half of which derives from the oil and gas industry. That’s also set to put pressure on the nation’s foreign reserves, which fell $57 billion this year to $454.7 billion on Oct. 3.

Russia’s central bank, which wants to adopt a free float by 2015, steps into the currency marketeach time the ruble crosses the upper limit of its trading band, selling $350 million before shifting the boundary by intervals of 5 kopeks.

“The current exchange rate policy will probably be tweaked again before the end of the year,” Danske’s Miklashevsky said. “They probably won’t abandon interventions altogether, but will make them less frequent, perhaps trimming the currency sales to $100 million before shifting the band.”

Article Credit: Bloomberg

Updated 5 Years ago

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Tags:     Russia     Vladimir Miklashevsky     Financial Group in Moscow