Ruble continues fall despite rate rise and interventions

By bne IntelliNews December 15, 2014

bne IntelliNews -

The ruble collapse continued on December 15, with Russia's currency falling by more than on any day since 1999. The ruble crossed both the 60 and the 61 rubles to the dollar mark, falling by as much as 5% to 61.25 to the dollar, until Russia's central bank intervened.

The central bank reportedly sold $350mn to support the currency, with the ruble recovering slightly to 60.8 to the dollar.

The ruble collapse spilled over on to Russia's stock markets, with the index of Russia's dollar- denominated RTS exchange collapsing by 8.5% to its lowest point since July 2009. The ruble- denominated MICEX fell by 2.5%.

Five-year Russian credit default swaps spiked by nearly 50 basis points to 537 basis points. 

The currency collapse took place without any prompting from oil markets: the oil price remained flat at $62.4. "Today it is not just about oil, it is about sanctions / geopolitical risk, and locals worried about the lack of policy action by the Russian authorities," wrote Standard Bank's Tim Ash.

The drop in the RTS caused the Central Bank to suspend trading in some futures instruments on the RTS.

The previous week the ruble crossed the mark of 58 to the dollar on December 12 to reach a 10% devaluation since the start of the week and a 45% devaluation since the start of the year. The ruble finished at 58.13 against the dollar and 72.3 against the euro, new historical lows against both currencies.

The drop in the value of the ruble came despite a 1 percentage point hike in interest rates by the Russian central bank on December 11.  According to sources quoted by Reuters, the central bank spent around $700m defending the ruble on the morning of December 12.

But the rate rise and central bank intervention were powerless to stop the ruble's slide as the price for a barrel of Brent oil dropped to $62 a barrel, its lowest level since 2009, marking an 8% fall in the price of oil during the week starting December 8.

Analysts see the ruble's devaluation as driven by the collapse in oil prices, in combination with Western imposition of sweeping sanctions on Russia over aggression in Ukraine. News on December 11 that the US Congress was set to approve new sanctions against Russia may also have weakened the ruble, say analysts. The new sanctions bill, still to be passed by the House of Representatives and signed by the president, focuses on Russia's defence sector.

“Don't expect the central bank to ride to the ruble's defence,” Standard Bank analyst Timothy Ash said in a note on December 11, arguing that the bank will let the ruble drop further in order to protect reserves.   "These are the new family silver, as the Russian policy elite are sending the message loud and clear that the crisis in Ukraine, and with the West therein, is going to be long drawn out, lasting years," Ash added.

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