By Ksenia Galouchko and Vladimir Kuznetsov
Ruble still falling... A woman is reflected in a window with a board displaying
The ruble fell to a record as oil declined and concern Standard & Poor’s will cut the country’s credit rating to junk curbed appetite for Russian assets.
The ruble weakened beyond 47 versus the Bank of Russia’s target dollar-euro basket for the first time and traded at 46.9921 by 6 p.m. in Moscow, after Ksenia Yudaeva, the first deputy central bank governor, told Bloomberg plans to free-float the currency next year remained intact. The Micex Index pared its weekly drop to 0.7 percent.
Russia’s central bank has spent more than $17 billion in October to slow the steepest currency retreat in the world in the last three months after U.S. and European Union sanctions over Ukraine triggered a dollar shortage and oil slipped to a four-year low. S&P is due to announce its decision on Russia’s credit score today, a week after Moody’s Investors Service cut the sovereign one level to its second-lowest investment grade, citing concern the sanctions will hurt the economy.
“If the sovereign rating is cut to the speculative level, the market may face another leg of correction and sell-off,” Alexander Sychev, an analyst at OAO Rosbank, said in a note today. “On the other hand, if the investment grade is maintained, the ruble has decent chances to recover all the losses of recent days.”
Sanctions imposed on Russia since its annexation of Ukraine’s Crimea region in March have driven the economy of the world’s biggest energy exporter to the brink of a recession.
Crude Slide
The ruble slumped 17 percent in the last three months as the penalties, which block some of the nation’s biggest companies from debt markets, raised the premium traders are willing to pay for dollars to near-record levels, data compiled by Bloomberg show. Brent crude lost 1.3 percent to $85.70 a barrel in London, exacerbating the weakness of Russian assets.
The central bank allows the currency to trade within a 9-ruble-wide corridor. When the ruble weakens past the boundary, the bank spends $350 million to defend it before shifting the band by 5 kopeks, according to its guidelines. It repeats the process each time the currency falls by 5 kopeks.
The Bank of Russia raised the corridor 40 kopeks yesterday, the most since 2012, its data show. That means the central bank probably spent about $2.6 billion from its reserves supporting the ruble, Iskander Abdullaev, a Sberbank CIB analyst in Moscow, said by phone today.
Free Float
Russia is sticking to its 2015 target for the ruble’s free float and a switch to inflation-targeting “despite recent market conditions,” Yudaeva said on the sidelines of a conference in Warsaw today.
“We made many preparatory steps to move to it,” she said. “I won’t comment on what part of the year it will be done.”
Europe’s sanctions won’t be eased without progress on a Ukrainian peace accord signed in the Belarusian capital of Minsk, Christian Wirtz, the German government’s deputy spokeswoman, said today. Russia has clashed with the U.S. over conflicts from Syria to Ukraine, sending relations between the two countries to levels not seen since Soviet times.
“There are no positive trends for the Russian market,” Vitaly Kupeev, an analyst at Allianz Investments in Moscow, said by phone. “It’s following the weaker ruble and oil.”
Brent’s 0.5 percent five-day decline put it on course for its fifth weekly drop in a row. Oil and natural gas provide about 50 percent of Russia’s budget revenue. The Micex stock index rose 0.2 percent, erasing a decline of 0.7 percent earlier. The yield on Russia’s 10-year ruble bonds was unchanged at 9.87 percent.
Russian Central Bank.
Reserves Slump
Russia resumed buying rubles this month for the first time since May, contributing to last week’s $7.9 billion drop in foreign reserves. Moody’s analyst Kristin Lindow cited the country’s “subdued” growth prospects and the “ongoing erosion” of its reserves for the cut last week. S&P currently ranks Russia BBB-, one step above junk.
Almost half the time, government bond yields fall when a rating action suggests they should climb, or they increase even as a change signals a decline, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as 38 years. The rates moved in the opposite direction 47 percent of the time for Moody’s and for S&P. The data measured yields after a month relative to U.S. Treasury debt, the global benchmark.
While a rating cut is “unlikely,” the possibility is adding “volatility to the dollar-ruble pair among speculators,” Sberbank’s Abdullaev said.
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