The Russian rouble dropped over 4.5% crashing through 60 roubles to the dollar on Monday for the first time on record.
The sharp falls are likely to trigger further concern over the central bank’s efforts to prevent rouble weakness from affecting the country’s financial stability.
Earlier Monday, Russia’s benchmark international dollar bond yield climbed another 14 basis points to 6.75%. That is higher than the equivalent borrowing costs of Rwanda, the Financial Times reported.
The central bank increased interest rates by 1% to 10.5% last week in an effort to slow the pace of rouble falls. It has also spent over $US70 billion of Russia’s foreign-currency reserves so far in 2014 buying up roubles in the market to prop up the currency. However, the currency has continued to track the oil price downward, with WTI crude falling below $US60 a barrel (down from $US107 a barrel in June).
However, the worrying development this time round is that the rouble is tumbling despite a rise in oil prices on Monday. This disconnect could suggest that the currency is now being driven by declining domestic sentiment rather than, as some had previously claimed, algorithmic trading that automatically sold roubles whenever the oil price declined.
While the country still has about $US416 billion in reserves and low government debt equal to only 9.2% of GDP, concerns have been focused on Russia’s corporate sector. In particular numerous Russian businesses borrowed heavily in dollars over the past few years, and repaying those loans is quickly becoming a much more expensive prospect.
Russian corporates are set to repay some $US35 billion in December and over $US100 billion in 2015 as a whole. With every day that the rouble continues its slide, that bill is getting ever bigger for companies that conduct most of their activities in Russia.
Last week news broke that the Russian state-owned oil company Rosneft, which faces a $US6.88 billion loan repayment on Dec. 21, sold 625 billion roubles ($US10.8 billion) of six- and 10-year notes into the local market at yields below those on equivalent Russian gov securities.
Bloomberg reported that the debt sale was a back-door refinancing of the company by the Russian central bank, as it simultaneously announced that exchange-traded Rosneft bonds would be eligible to be used as collateral in an unprecedented 700 billion rouble liquidity auction Monday. The move was unusually swift, according to analysts, and is indicative of the problems facing even some of Russia’ s largest companies.
For companies in more parlous positions the recent falls could prove even more costly.
It looks like the Russian central bank might be intervening again to defend the currency.