Russia's central bank vows to defend the ruble

Russia's central bank vows to defend the ruble

Friday, November 7, 2014 7:36 pm

Russian money

Russian money

Russia’s central bank said Friday it was ready to step in to protect the crashing ruble, after the currency was hammered by a day of panic selling that have sparked fears of a full-blown crisis.

The policy U-turn came just two days after the central bank said it would limit its support for the falling currency by drastically cutting its unlimited daily interventions to avoid speculation against the currency.

But Wednesday’s announcement sent the ruble plunging, with the currency touching record lows of 60 against the euro, and 48 against the dollar on Friday.

That prompted the Bank of Russia to send out a message that it was ready to step in at any time it sees “risks for financial stability.”

The ruble has lost 10 percent in value in the course of the week amid plunging oil prices and the fallout from the Ukraine crisis.

After the central bank’s announcement on Friday the ruble regained some ground, climbing back up to 58.02 for the euro and 46.7 for the dollar by late afternoon.

“This is a full-scale panic with hints of a currency crisis based on self-fulfilling expectations,” said ING analyst Dmitry Polevoy.

“The scale of the fall is likely to have set off alarm bells ringing among policymakers,” said Capital Economics, predicting an imminent hike in interest rate.

The central bank last week jacked rates up from 8.0 to 9.5 percent.

Russia’s Foreign Minister Anton Siluanov attempted to assuage fears of an out-of-control slide, saying the plunge is due to “speculative” factors.

“The ruble rate today is too low, soon we will see that our balance of payments is rather stable,” Siluanov told the RIA-Novosti news agency.

“The fluctuations we have seen over the past two days have a rather speculative character and don’t correspond with the basic conditions for the ruble.”

Grilled by journalists about the ruble’s dwindling value, Kremlin spokesman Dmitry Peskov said he cannot comment since he is “not a financial expert”.

– ‘Frenzied’ foreign currency demand’ –

The ruble has shed about a quarter of its value since the beginning of the year as Western sanctions on Russia over its role in the Ukraine crisis have led to a surge in capital flight from the country.

The sanctions have also made it nearly impossible for Russian companies to borrow in the West, with the local currency market under pressure as firms buy dollars to repay existing loans.

The decline had increased Wednesday after the Bank of Russia announced it had dramatically reduced its support for the ruble to $350 million per day.

But on Friday, it said in a statement that it spent $30 billion in October to keep the ruble afloat, vowing to spend more if needed due to the “frenzied demand” for foreign currency.

“In these conditions the Bank of Russia is ready to increase currency interventions at any moment as well as use other financial instruments at its disposal,” the bank said, though stopping short of announcing any immediate action.

Beyond sanctions, the currency has been hit hard by plunging oil prices, which are now at around $82 per barrel, almost 20 percent off the price Russia needs to shore up its public finances.

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