Ruble Weakens After Russia Exporters Drove Best Week Since 1998

26 Dec 2014 | Author: | No comments yet »

Rouble rebounds from lows as exporters sell dollars.

The ruble rose to a three-week high on speculation the government is ordering exporters to sell dollars and euros as Russia take steps to avert a banking crisis without draining its own reserves.MOSCOW—Russia needs to reassess its military spending amid slowing economic growth and reduced access to global capital markets as falling oil prices have hit the domestic economy hard, Finance Minister Anton Siluanov said Friday.MOSCOW—The Russian ruble was steady Friday as the reluctance of market players to pay high borrowing costs following the country’s recent rate hike caused a deficit in the local currency. Under President Vladimir Putin , Russia has increased military spending in the past few years as the country benefited from steady inflows of petrodollars.

The rouble plunged to all-time lows last week on heavy falls in the price of oil, the backbone of the Russian economy, and Western sanctions over the Ukraine crisis that have made it near impossible for Russian firms to borrow on Western markets. Currently, Russia spends a third of its federal budget on defense and law enforcement, a proportion which is rising as overall state spending shrinks.

But it has rebounded after authorities took steps to halt its slide and bring down inflation, which after years of stability threatens president Vladimir Putin’s reputation for ensuring the country’s prosperity. Government bonds fell for a third day as Russia raised its 2015 budget-deficit forecast amid an oil-price slump that’s pushing the economy toward to a recession. Those measures included a hike in interest rates, curbs on grain exports and informal capital controls such as orders to large oil and gas exporters Gazprom and Rosneft to sell some of their dollar revenues. On Friday, the rouble was 0.86 per cent stronger versus the dollar at 52.1, its strongest since December 1st, in thin trade, with many Western markets closed for the Christmas Day holidays. The central bank bailed out a lender this week after last week’s run on the ruble worsened conditions for banks already facing growing bad loans amid sanctions over Ukraine. “Exporters are most likely selling their foreign-currency revenues following the government directive,” Sergey Vakhrameev, a money manager at Ankor Invest LLC in Moscow, said by phone. “This is the key driver for the ruble’s gains.” The forced sales come after the country’s foreign-currency reserves slid by 15.7 billion rubles in the week ended Dec. 19, the biggest drop since January 2009.

The ruble’s recovery follows a major push by the government and central bank to stabilize the market and has eased fears of a spiraling financial crisis in Russia. The rate banks charge each other for overnight cash dropped 268 basis points to 18.75 percent today in a sign money-market funding conditions are easing. Russia is widely expected to slide into recession next year for the first time in six years, a factor which are already putting the ruble under pressure. That brings it almost in line with the central bank’s key interest rate, which was raised to 17 percent from 10.5 percent in an emergency move on Dec. 16 to shore up the currency.

A bank-recapitalization proposal was also rushed through parliament, getting approval from the upper house of parliament today to allow the Deposit Insurance Agency to buy stakes in banks before they face bankruptcy proceedings. Siluanov said Russia won’t push the government in Kiev for early reimbursement of a $3 billion eurobond that Moscow gave a year ago to Ukraine under its former president Viktor Yanukovych. Gazprom, OAO Rosneft and three other exporters must reduce their foreign-currency holdings by March 1 to levels no higher than on Oct. 1, according to a Dec. 23 document. Russian exporters were forced to switch as much as 75 percent of their revenue in 1999 before the requirement was gradually cut and abolished entirely in 2006 as part of a broader push to eliminate capital controls. Standard & Poor’s said two days ago there’s at least a 50 percent chance it will cut Russia’s credit rating to below investment grade within 90 days.

To contact the reporters on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net; Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net

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