A report by Bloomberg that Russia was considering capital controls panicked the foreign exchange market, forcing the central bank to intervene to support the ruble.
The ruble had just started to strengthen against the dollar, stabilizing at around RUB44.1 against the dollar-euro currency basket, within the upper limit of Russia's ruble corridor RUB44.4, beyond which the central bank starts selling dollars.
Then Bloomberg newswire filed a report quoting two high-placed officials as saying that Russia could introduce capital controls if things got worse. "Russia’s central bank is weighing the introduction of temporary capital controls if the flow of money out of the country intensifies, according to two officials with direct knowledge of the discussions," the report read.
Within three minutes, the rubble had fallen to RUB44.52 against the basket, breaching the corridor. Other media outlets tried to confirm the story, but none found a single source ready to say that there was a plan to introduce capital controls. The central bank stated that, "it was not considering the introduction of any restrictions on the flow of capital."
Panic lasted for several minutes: the ruble rebounded and the exchange rate measured against the currency basket returned to the corridor, with the central bank making a few more small interventions on the market.
"The spike in FX volatility ignited by the initial piece of news was completely unnecessary, while the magnitude of the price action highlights the vulnerability of the exchange market," VTB Capital analysts wrote.
Chairman of MDM bank and former first deputy head of the central bank Oleg Vyugin said that it was possible that there was some informal discussion of capital controls. "The currency market depends on exporters, investors and the central bank. Investors are leaving, the central bank has said it will not intervene and will instead target inflation, so that leaves only exporters and speculators on the market," Vyugin said.
"Exporters stopped selling their hard currency revenues and the ruble fell to RUB40 to the dollar. When there are no investors, you have to either control the exchange rate or introduce restrictions, so the exchange rate doesn't fall through the roof," Vyugin said.
The size of the central bank intervention was probably not sufficient to widen the ruble trading corridor. The central bank adjusts the corridor by 5 kopeks when intervention exceeds $350m, but this was probably not the case, say market participants.
"I reckon we are already talking about well over USD100bn YTD in flight capital departing. That's still less likely than 2008 when they lost around USD200bn on the back of the Lehman panic and at that time did not go down the capital controls route," writes Standard Bank's Tim Ash.
Sergei Glazev, an adviser to President Vladimir Putin, suggested previously in a parliamentary discussion that Russia impose a tax on money being moved abroad. "To reduce the stimuli for capital outflows… we have to fight the export of capital," Sergei Glazyev was quoted as saying by RIA Novosti. "I would propose thinking about the introduction of a tax on the export of capital."
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