Bank of Russia Gets Putin’s Praise, Opts for Verbal Intervention
Russian President Vladimir Putin commended the central bank for its efforts to keep the ruble stable after policy makers called for calm as the currency headed for a six-month low.
“The central bank is doing a lot to strengthen the national currency or in any case to ensure its stability and the stability of the financial system as a whole,” Putin said at a meeting with Governor Elvira Nabiullina. “I see how persistent you are in going down that path.”
The Bank of Russia said on Monday that corporate debt payments this year won’t overwhelm the foreign-exchange market with “excessive demand” after such redemptions last year helped spark Russia’s worst currency crisis since 1998. Companies and lenders have to repay as much as $35 billion out of the $61 billion in foreign debt that falls due from September to December, the central bank said in a statement on its website. The rest may be rolled over or refinanced because some of it is owed to affiliated companies, it said.
The ruble is the worst performer globally against the U.S. currency in the past three months, according to data compiled by Bloomberg. It fell for a fourth day, depreciating 0.4 percent to 64.3160 versus the dollar at 2:45 p.m. in Moscow.
Policy makers are short on instruments as they try to avert another ruble collapse after a rushed switch to a freely floating ruble in November. While the central bank has faced questions about its commitment to allow the market to set the ruble’s exchange rate, the Russian leadership has been more unabashed in acknowledging a measure of control over the currency market as the economy succumbs to a recession. Putin said in June that a weaker ruble was helping Russian companies weather the economic crisis.
Oil, Ruble
With a renewed slide in commodity prices hammering the ruble, the central bank last month halted foreign-currency purchases after starting them to boost reserves in mid-May. It’s defended the operations as compatible with its free float and has pledged to avoid interventions unless the ruble’s swings threatened financial stability.
With its statement on Monday, the central bank is conducting “verbal intervention aimed at stabilizing market sentiment regarding the ruble,” Dmitry Dolgin, an economist at Alfa Bank in Moscow, said by e-mail. “There are concerns on the market that the looming repayment of external debt will exert significant pressure on the balance of currency demand and supply on the domestic market, especially under the conditions of falling oil prices.”
Bonds, FRAs
The Russian government’s five-year bonds dropped, pushing the yield up three basis points to 11.13 percent, while the Micex index of stocks declined 0.4 percent.
Forward-rate agreements are signaling 52 basis points of increases in borrowing costs during the next three months, the most since December. The Bank of Russia has lowered its key interest rate by a cumulative six percentage points to 11 percent in five steps this year.
Lenders and companies have accumulated about $135 billion in liquid foreign assets, according to the central bank. The nation’s current-account surplus, which may also help finance debt repayments, is estimated at about $20 billion with oil at $40 a barrel, it said in the statement.
The Bank of Russia has about $14 billion available in foreign-exchange repurchase facilities from its $50 billion program unveiled last year. It made currency available through its operations starting in October, introducing one-year facilities the following month to curb a deficit in dollar liquidity.
To take the pressure off the currency, the Bank of Russia will restart one-year foreign-exchange repurchase operations that were halted June 1, according to 14 of 17 economists surveyed by Bloomberg last week.
Affiliated Companies
The share of “intra-group liabilities,” or money owed to affiliated companies, is estimated at 74 percent of all external debt repayments in September, 59 percent in October, 8 percent in November and 48 percent in December, according to the central bank. The regulator cited its survey of the 30 biggest Russian companies that account for as much as 60 percent of total repayments by non-financial organizations through the rest of 2015.
The central bank’s comments “will partially support the ruble, but will appeal mainly to the most emotional, speculatively biased investors,” said Denis Davydov, an analyst at Nordea Bank AB in Moscow. “The most vulnerable issue for the market is the price of oil.”
Source: Bloomberg – Bank of Russia Gets Putin’s Praise, Opts for Verbal Intervention
