Ruble jumps in expectation of rates hike, ruble float

By bne IntelliNews October 31, 2014

bne -

 

The ruble surged more than 5% to RUB41 per dollar on October 31 from a fresh record low reached after months of devaluation, in apparent expectation of higher interest rates to be announced later today.

With Bloomberg predicting a 50 basis point rate hike, taking the Russian central bank's main interest rate to 8.5%, and the central bank possibly set to announce an early shift to a ruble free float, traders were reportedly reducing short positions. "Some aggressive position squaring may have been the key driver behind today’s move," said Anne Benoit of Societe General in an email. "There is some significant nervousness about the risk that the central bank of Russia may do something dramatic tomorrow," she added.
    
“It looks like a short-squeeze,” said Denis Korshilov, head of trading at Citibank. "A technical correction is long overdue, especially ahead of the central bank’s possible interest rate increase,” Bloomberg quoted him as saying.

Beyond a looming interest rate hike, one possible explanation circulating for the turbulence on the trading floor is that the central bank could announce an early switch to a ruble free float, with analysts at Sberbank CIB anticipating such a move.

Russia's central bank has spent nearly $68bn on currency interventions so far in 2014, despite being believed to broadly back a ruble devaluation. "The CBR [Central Bank of Russia] has made it pretty clear in recent months that it quite likes a weaker ruble - for all the factors noted above, and has not done much to draw a clear red line in the sand in defending the ruble," Standard Bank analyst Tim Ash wrote in a note.

The switch to a free float is slated for January 2015, and an early move would reduce the haemorrhage in reserves.

According to Alfa Bank's Natalia Orlova, rumours of pending switch to a free float may have driven down the ruble to its historic low of RUB43.9 to the dollar early on October 30, with alleviation of fears prompting a rally, along with "a massive sale of unclear provenance”, Orlova told Vedomosti.

Most analysts however are not expecting any dramatic measures from the central bank that could justify the more than 5% surge. "We believe that the rate hike will be measured, only a 50bp move, and that the CBR will not move to a free-float exchange rate regime," Societe Generale's Anne Benoit wrote.

Other reports spoke of differing predictions within one and the same institution, with Morgan Stanley economists predicting a 50 percentage points hike while their currency traders anticipate a 100-150 percentage point hike, according to business daily Vedomosti. 

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss