Ruble Plunges as Russia’s Central Bank Spends Billions to Staunch Losses

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SHAFAQNA (Shia International News Association)

Russia’s ruble plunged again on Friday, and traders said the Central Bank intervened heavily to slow its slide, as oil prices dropped and Russian companies locked out of international capital markets drove demand for dollars.

The Central Bank says it has spent $3.3 billion defending the ruble between last Friday and Wednesday, but the total amount over the past week is likely to be far larger since it releases its intervention data with a two-day lag.

Early on Friday the bank said it had shifted the ruble’s floating corridor on Thursday, the 12th 5-kopek shift since last Friday, but the currency breached the new limits within the opening minutes of trading.

The ruble has been pressured for months by a plunge in prices for oil, one of Russia’s chief exports, as well as Western sanctions over the Ukraine crisis and dollar strength linked to speculation over a rate hike by the U.S. Federal Reserve.

“The pressure on the ruble is unlikely to subside today. The market is being driven by demand for foreign currency, which is being unconvincingly countered by the Central Bank shifting the boundaries of its currency corridor,” Vladimir Evtisfeev, a financial analyst at Bank Zenit in Moscow, said in a note.

Sanctions over Ukraine mean dollars and euros are in short supply as major Russian firms are shut out of Western capital markets but still need foreign currency to service their overseas debts.

The ruble has lost over 20 percent against the dollar this year, and the Central Bank has spent tens of billions in interventions, the bulk of which came in March when the Ukraine crisis escalated.

The Central Bank said early Friday it had shifted the boundaries of its floating ruble corridor 15 kopeks higher to 36.00-45.00 against a dollar-euro basket as of Oct. 9 and had spent $1.5 billion in interventions on Wednesday.

The ruble broke through those new boundaries straight after trading began, later hitting a low of 45.20 against the basket and was last trading at 45.19.

The central bank automatically intervenes to defend the ruble once it crosses the boundaries of its trading band and moves the band by 5 kopeks once it has spent $350 million in forex interventions, implying that the bank spent around $1 billion in additional forex interventions on Thursday.

Traders said the Central Bank continued to intervene heavily in the currency market on Friday and had likely shifted its ruble corridor by another 20 kopeks.

By 1 p.m. the ruble was 0.5 percent weaker against the dollar at 40.35 and lost 0.36 percent to trade at 51.11 versus the euro.

Weaker oil prices were a major drag on both the currency and stocks on Friday, with Russia’s two main share indexes down more than 1 percent. Futures for international crude benchmark Brent tumbled over $1 to below $89 a barrel on Friday, their weakest since 2010.

The dollar-denominated RTS share index was down 2.1 percent at 1,065 points, while its ruble-based peer MICEX was 1.4 percent lower at 1,364 points.

Russia’s top lender Sberbank was down 1.2 percent, while the country’s largest oil producer, Rosneft, fell 2.2 percent.

www.themoscowtimes.com

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