Rus­sia seen turn­ing to cri­sis play­book to pre­vent ru­ble rout

The Pak Banker - - BUSINESS -

Rus­sia's cen­tral bank may pick up where it left off ear­lier this year to avert another run on the ru­ble.

To take the pres­sure off the cur­rency, the Bank of Rus­sia will restart one-year for­eign-ex­change re­pur­chase oper­a­tions that were halted June 1, ac­cord­ing to 14 of 17 econ­o­mists sur­veyed by Bloomberg. Other sup­port mea­sures may in­clude "tar­geted" cur­rency in­ter­ven­tions and a de­lay of fur­ther in­ter­est-rate cuts, ac­cord­ing to BNP Paribas SA. Pol­icy mak­ers will start ver­bal in­ter­ven­tion with the oil price be­low $50 a bar­rel, Royal Bank of Scot­land Group Plc said.

The cen­tral bank may be forced to take a page from the play­book used to fight Rus­sia's worst cur­rency cri­sis since 1998 as com­pa­nies face grow­ing re­pay­ments of ex­ter­nal debt and last week's sus­pen­sion of for­eign-ex­change pur­chases fails to ar­rest a plunge in the ru­ble. It made cur­rency avail­able through its oper­a­tions start­ing in Oc­to­ber, in­tro­duc­ing one-year fa­cil­i­ties the fol­low­ing month to curb a deficit in dol­lar liq­uid­ity.

"FX repo auc­tions are an emer­gency fa­cil­ity used when pres­sure on the ru­ble is ex­treme," Sergey Narke­vich, an an­a­lyst at PAO Promsvyazbank in Moscow, said by e-mail. "Oil prices will with high prob­a­bil­ity stay low in the next few months. At the same time, a large amount of ex­ter­nal debt re­pay­ment is due in Septem­ber 2015, so it is likely that the Bank of Rus­sia will launch the 12-month FX repo auc­tions then."

The cen­tral bank didn't re­spond to ques­tions about the pos­si­bil­ity of re­sum­ing the auc­tions and said all com­ments on the is­sue will be made pub­licly avail­able on its web­site. Most econ­o­mists in the sur­vey pre­dicted that 12-month for­eign-cur­rency auc­tions will be re­sumed in Septem­ber at the latest, with the rest see­ing the pro­gram re­vived some time in the fourth quar­ter. Some of the loans bor­rowed by banks be­gin to ex­pire in Novem­ber. "The cen­tral bank's hands are tied," Ta­tiana Orlova, the chief Rus­sia economist for RBS in Lon­don, said by e-mail. "The re­sump­tion of 12-month FX repo auc­tions is the least painful way of sup­port­ing the ru­ble, ver­sus FX in­ter­ven­tions or rate hikes." The cen­tral bank last week re­duced rates for the fifth time this year, cut­ting its bench­mark by a half point to 11 per­cent, while drop­ping its com­mit­ment to con­tinue eas­ing as in­fla­tion de­cel­er­ates.

Oil is trad­ing in a bear mar­ket as ex­pand­ing sup­plies and signs of slower eco­nomic growth in China fu­eled a rout in com­modi­ties. That made the ru­ble the worst per­former in the past month among among 24 emerg­ing-mar­ket cur­ren­cies tracked by Bloomberg. The ru­ble ap­pre­ci­ated against the dol­lar af­ter three days of losses, climb­ing 0.9 per­cent to 62.98 at 6:40 p.m. in Moscow. Brent fu­tures rose as much as 1.9 per­cent, par­ing a 5.2 per­cent fall on Mon­day, and traded 1.1 per­cent higher at $50.08 a bar­rel on the Lon­don­based ICE Fu­tures Europe ex­change.

The Bank of Rus­sia has fewer tools avail­able to shore up the ru­ble af­ter in­tro­duc­ing a free float last Novem­ber. It's pledged to avoid in­ter­ven­tions on the for­eign-ex­change mar­ket un­less the cur­rency's swings threat­ened fi­nan­cial sta­bil­ity.

Rus­sian com­pa­nies, which have to pay off about $35 bil­lion in net for­eign debt in the sec­ond half of the year, have ac­cu­mu­lated "sig­nif­i­cant" for­eign-cur­rency liq­uid­ity, the cen­tral bank said Fri­day. Tak­ing into ac­count the Bank of Rus­sia's for­eignex­change repo oper­a­tions and its pause in cur­rency pur­chases, that "will en­sure no ad­di­tional pres­sure on the ru­ble" in the third and fourth quar­ters, it said in a state­ment.

Lenders have $32.8 bil­lion in for­eign­cur­rency fund­ing from the cen­tral bank, in­clud­ing $26 bil­lion in one-year agree­ments, with the pro­gram's ceil­ing set at $50 bil­lion. Re­pay­ments on 12-month fa­cil­i­ties are loom­ing in Novem­ber, which may rep­re­sent "a con­sid­er­able risk for the sys­tem," Sber­bank CIB an­a­lysts Iskan­der Ab­dul­laev and Alexan­der Golin­sky said in a re­port on Mon­day. Loans of $5 bil­lion ex­pire in De­cem­ber with more than $15 bil­lion due in the first quar­ter, Sber­bank CIB es­ti­mates. That will co­in­cide with large re­demp­tions of for­eign debt by Rus­sian com­pa­nies, bol­ster­ing the case for the cen­tral bank to re­move lim­its on pro­vid­ing dol­lar liq­uid­ity, it said.

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