Traders are claiming that the Russian central bank has stepped back into currency markets to halt the rouble’s slide as it continued to fall in early trading on Wednesday. Here’s the evidence — the rouble sudden reversed its losses in early trading to turn up on the day against the dollar:
The central bank confirmed earlier rumours that it had intervened in currency markets on Monday. On Wednesday it confirmed that it had spent $US700 million to defend the rouble over two days after the currency saw its worst falls against the dollar and the euro since the 1998 Russia crisis.
According to Bloomberg, this joke has been bouncing around Russian social media:
Heard the one about Vladimir Putin, the oil price and the ruble’s value against the dollar? They will all hit 63 next year.
Though humorous the joke hits on a serious problem that Russia is facing. The country’s currency has proven hugely sensitive to oil price falls, closely tracking the collapse of crude oil prices that have dropped by over 30% since June:
Since the start of the year Russia’s international reserves have fallen almost $US90 billion from $US510 billion to $US420.4 billion as at November 21st. It spent $US15 billion in October alone buying up roubles in currency markets in order to soften the impact of the sharp drops in its value on the Russian economy.
However, it has been unable to halt to slide as oil prices continued to slide and Western sanctions over Russia’s role in the ongoing Ukraine crisis took their toll. On Tuesday the country’s Economic Development Ministry revised down its GDP projection for next year from 1.2% growth to a 0.8% contraction suggesting that Russia is falling into a recession.
The Russian government, along with the central bank, must now decide how much more of its foreign currency reserves it is willing to spend to defend the rouble from further falls. Top of their minds will be the more than $US130 billion in foreign-currency debt due to be repaid by Russian businesses over the next 12 months.
As the rouble falls that bill is getting ever more expensive.