Bloomberg News

Russia Sold $600 Million in Three Days to Cushion Ruble Fall

June 06, 2012

Russia’s central bank sold about $200 million of foreign currency in each of the past three days to cushion a decline in the ruble as Europe’s debt crisis worsens.

The ruble’s drop will probably slow from the pace in May as the central bank steps up currency interventions, Bank Rossii Chairman Sergey Ignatiev said in St. Petersburg today. The central bank may have to sell as much as $700 million of foreign currency a day to support the ruble if oil prices continue to fall, he said.

Bank Rossii is draining its foreign-currency reserves to defend the ruble as oil prices plunge and concern mounts over Spain’s finances and Greece’s possible exit from the euro area. The currency fell 12.1 percent against the dollar last month, the biggest decline since January 2009 and the most among 31 major currencies tracked by Bloomberg.

“The main reason, and possibly the only reason, is the deterioration of the crisis in Europe,” Ignatiev said. “Unfortunately, European politicians haven’t yet offered a clear and convincing program on how to tackle the crisis.”

The ruble strengthened 1.7 percent against the dollar to 32.4500 as of 6:23 p.m. in Moscow, its third day of gains.

Policy makers still plan to contain consumer-price growth within a target range of 5 percent to 6 percent, Ignatiev said.

Post-Soviet Low

Inflation held at a post-Soviet low in May, with prices advancing 3.6 percent from a year earlier, the statistics office said yesterday. The world’s largest energy exporter pushed the pace of price growth to record lows by delaying utility-tariff increases to mid-year before President Vladimir Putin’s election to the Kremlin in March.

Consumer-price growth may quicken to 4.6 percent in July, Ignatiev told reporters today, citing government forecasts.

The ruble will probably bounce back to April’s levels, meaning the recent declines will have only a limited impact on inflation, Ignatiev said. Should the ruble remain at its current level, the effect on inflation is unlikely to be “strong” and will be spread out over time, he said.

“Should the drop in oil prices halt, the strengthening of the ruble is very likely,” Ignatiev said. “Should the decline continue, the weakening of the ruble is likely, though not for a fact.”

Crude Drops

Urals crude, Russia’s main export, dropped 15 percent last month, its sharpest decline since May 2010. Oil and gas provide about 50 percent of state revenue, the government estimates.

Every 10 percent-depreciation in the ruble may add 0.5 to 1 percentage point to the inflation rate over a period of three to six months, according to Vladimir Kolychev, director of research at Societe Generale SA-owned OAO Rosbank in Moscow.

“However, as evidenced recently, this mostly works for larger” currency moves, Kolychev wrote in an e-mailed note today.

Prime Minister Dmitry Medvedev told Ignatiev at a June 2 meeting to step up sales of foreign currency to bolster the ruble and economic stability if needed.

The central bank manages the ruble within a floating corridor against a basket of dollars and euros. That range remains 32.15 to 38.15 to the basket, Ignatiev said.

‘Willing to Spend’

“The central bank will start to support soon the bottom of the corridor,” VTB Group Chief Executive Officer Andrei Kostin said in an interview on Bloomberg TV today. “The central bank is willing to spend more dollars. I’m not expecting the ruble to depreciate further.”

Currency interventions had no effect on liquidity in the banking system, Ignatiev said, adding that interbank lending rates of 6 percent are “normal.”

While the condition of the banking system “doesn’t yet raise concern,” Ignatiev urged Russian lenders to prepare for “the worst” in Europe by increasing refinancing operations with the central bank.

“It’s important for banks to hold sufficient amounts of assets that they could provide as collateral for the central bank for refinancing,” he said.

Russia predicts no more “significant fluctuations” in the ruble exchange rate following its recent depreciation against the dollar, Finance Minister Anton Siluanov said yesterday. If the currency continues to weaken in the long term, it may increase the prices of imported goods and boost inflation by as much as 1 percentage point, Siluanov said.

Capital outflows reached a net $46.5 billion in the first five months of the year, Ignatiev said, citing preliminary data. That includes $5.8 billion in May, which “is a lot for our country,” he said. Capital inflows may still resume this year, he added.

“Markets would want the Putin administration to respond by indicating more meaningful and deep-seated structural reforms to reduce Russia’s vulnerability on oil and commodities,” Tim Ash, chief economist for emerging markets at Royal Bank of Scotland Group Plc in London, said in an e-mailed comment. “Past experience suggests we will just get crisis management to defend the status quo, rather than meaningful change.”

To contact the reporters on this story: Scott Rose in Moscow at; Milda Seputyte in Vilnius at

To contact the editor responsible for this story: Balazs Penz at

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