Azernews.Az

By Bloomberg

The ruble slid as traders tested the willingness of Russian authorities to defend the currency and shore up an economy headed for recession.

The ruble retreated 1.1 percent to 53.7685 per dollar at 2:20 p.m. in Moscow. It earlier advanced as much as 2.3 percent after the Bank of Russia reduced the rate it charges lenders for dollars to ease a cash crunch exacerbated by U.S. and European sanctions. Russian stocks erased gains and wagers for interest- rate increases rose to a six-year high as Brent crude traded near $70 a barrel after losing 26 percent this quarter.

President Vladimir Putin pledged to punish speculators attacking the ruble with “harsh” measures in his annual address to parliament, which he also used to defend Russia’s annexation of Crimea. Before he spoke, the Bank of Russia said it would lower the minimum rates on foreign-currency repurchase agreements provided for as long as a year, saying the ruble had “substantially” deviated from its fundamental value.

“Putin failed to scare speculators,” Bernd Berg, a London-based strategist at Societe Generale SA, said by e-mail after the speech. “Unless the central bank comes in with some meaningful measures like significant FX interventions in the size of a couple of billion, or aggressive tightening measures, the ruble will remain under massive selling pressure as fundamentals in Russia deteriorate by the day.”

Dollar Shortage

The currency has lost almost a third of its value since Putin started his incursion into Crimea in March, the worst performance among 24 emerging markets tracked by Bloomberg. The U.S. and European sanctions imposed on Russia following the annexation of Crimea created a domestic dollar shortage as the penalties cut off companies from western debt markets.

The central bank sold $700 million on Dec. 1 and traders said yesterday it probably stepped in again after the ruble tumbled to a record 54.9090. The currency rebounded 1.2 percent yesterday versus the dollar.

“Putin sees that there are big problems with the economy that need to be resolved,” Andrey Vashevnik, who manages $25 million as the chief investment officer at R&B Investment Fund Ltd. in Moscow, said by phone. He “finally realized that Russia will see a real crisis that it can’t just ignore. It’s positive that he understood this.”

The government acknowledged in forecasts for the first time this week that the economy of the world’s biggest energy exporter will fall into a recession next year, with the Economy Ministry estimating gross domestic product will shrink 0.8 percent next year.

Inflation Pressure

The ruble’s drop is creating risks for financial stability and spurring expectations of inflation and depreciation, the central bank said in today’s statement, reiterating its readiness to conduct unlimited interventions to support the currency.

The monetary authority will reduce the minimum one-week, 28-day and 12-month repurchase auction rates to 50 basis points above the London interbank offered rate, compared with 150 basis points previously. It holds its next auction for 28-day cash on Dec. 8.

The lower rates on liquidity operations “will increase their efficiency and help reach a balance in supply and demand on the currency market,” the central bank said.

“The market impact will directly depend on banks’ interest in the new facility, which so far was rather limited,” Vladimir Osakovskiy, the chief economist for Russia at Bank of America Corp. in Moscow, said in an e-mailed comment.

Forward-rate agreements show wagers for another 240 basis points of rate increases in the next three months, the most since October 2008, data compiled by Bloomberg show.