Interbank Rates Leap to Historic Highs

The country's money market rates jumped to historic highs Monday as companies rushed to meet tax deadlines, but falling stocks and expectations of another currency devaluation meant that support for the ruble was fleeting.

Mosprime overnight interbank money market rates fixed at 22.67 percent — their highest since the series began at the start of 2007 and more than double Friday's levels.

All other rates in the Mosprime range, which goes up to six months, also hit historic highs.

Adding to liquidity pressure will be the need to pay back funds to the Finance Ministry and the Central Bank, with an estimated 800 billion rubles ($29.2 billion) maturing in the next 10 days.

The demand for money to meet an estimated 200 billion rubles of tax payments due Monday briefly boosted the ruble as much as 0.5 percent to 30.54 against a euro-dollar basket.

But the support proved fleeting, with tax-related demand unable to overrule broad negative sentiment about the ruble, and it closed at 30.70 to the basket, about the level seen as the new Central Bank support level, following last week's 1 percent devaluation.

"The market is disorientated, and there is no trust nor logic," said a dealer at a medium-sized Russian bank.

Nonetheless, the ruble's brief rally meant that the Central Bank spent less than $1 billion propping up the currency Monday according to dealers' estimates — compared with estimated sales of about $16 billion last week.

"In the end, they still have to widen the corridor massively. In our view, they will probably do that and then make sure the ruble doesn't immediately go to the top end of the band," said Clemens Grafe, senior emerging market economist at UBS, forecasting that something will happen in the next one to two weeks.

"They have to make it less predictable. Given that there is pressure on the ruble to depreciate, it's crazy to keep it at the upper end of the corridor that everyone perceives as fixed," Grafe said.

One dealer at a major foreign bank in Moscow said any gains in the ruble this week could provide a convenient opportunity to officially announce a widening of the band at a time when the currency may not necessarily sink straight to a new low.

"People continue to think that there could be a devaluation tomorrow," he said, estimating the chances at 50-50.

Others said, however, that another devaluation may not come so soon and that predicting Central Bank moves was a thankless task.

Illustrating the size of bets against the ruble, data on Monday showed that the volume of currency swaps performed by the Central Bank jumped severalfold last month.

Daily limits on such operations with the Central Bank were introduced on Oct. 20 in a bid to curb currency speculation. The limit was set at 20 billion rubles Monday, the same as in the previous three sessions.