The ruble is continuing its decline against the dollar, falling to a new low on September 29 which is fractionally above that at which Russia's central bank has said it would intervene.
The ruble has now devalued by over 20% against the dollar this year, coming close to the psychologically important RUB40 to the dollar at RUB39.58, as tumultuous events in Ukraine have seen Russia's relations with the West hit rock bottom.
The ruble also weakened against the euro to hit €50.21. This meant that the ruble's value against the currency basket mix of euros and dollars fell to RUB44.37, just 30 kopeks above the upper threshold of a corridor the Central Bank of Russia (CBR) has said it will defend with interventions on the market. The CBR has not intervened since May.
Sanctions on Russian state-owned companies have effectively closed international capital markets to them, forcing them to pay down international loans instead of rolling them over, putting pressure on the currency and causing capital flight.
“The market is more and more being seized by panic,” ING's chief economist in Russia, Dmitry Polevoy, wrote in a research note. "The ‘ghost’ of peak external debt payments in September and December is the most often-cited enemy of the ruble. The attempt to test 44.40 looks well grounded.”
Luis Costa at Citigroup said in e-mailed comments that: “Markets remain very nervous ahead of the roll-over cliff in December-February.”
In the first three months of 2015 it spent $72bn to support the ruble, but the CBR is moving towards a free float for the ruble in January 2015, and widened the ruble trading corridor as recently as August. Floating the ruble will help the CBR target inflation, and thus support economic growth that is based on investment, Central Bank head Elvira Nabiullina has said.
But the short-term turmoil wrought by sanctions may put a spanner in the works. “Sanctions will lead, we think, to enhanced capital outflow and dollar funding stress, particularly at peaks in external debt repayments,” analysts at Morgan Stanley said in a recently published research note, as quoted by the Moscow Times. “We think a free float looks implausible.”
Presidential aide Andrei Belousov was quoted by Interfax as telling journalists on September 29 that the ruble is over-depreciated and ought to strengthen.
Referring to Belousov's remark on the exchange rate, as well as recent calls by Russian Foreign Minister Sergei Lavrov for another reset and the political fallout from the arrest of oligarch Yevtushenkov, Standard Bank's Tim Ash commented: "I would contend that the Russian authorities are nervous and rattled."
According to Paul Rawkins at Fitch Ratings, adherents of inflation targeting, a flexible exchange rate and fiscal rules in the government were now at loggerheads with those believing the economy needed more money, as quoted by business daily Vedomosti.
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