Central Bank Allows Ruble to Drop Again

The ruble fell against the dollar in the first official trading day this year as the Central Bank devalued the currency for the 13th time in two months and companies demanded foreign currency to repay debt.

The ruble weakened to 30.53 per dollar, according to MICEX data at 4:32 p.m. on Sunday, a 3.7 percent decline from 29.41 on Dec. 30. The Central Bank devalued the currency against its target dollar/euro basket, said a Central Bank official who declined to be identified, citing the bank's policy. The basket fell almost 1.5 percent to 35.3 on Sunday, from 34.8 on Dec. 30.

The ruble may retreat 10 percent against the basket this month as companies and banks demand foreign currency to repay more than $80 billion of debt this year, according to Societe Generale. The currency has weakened 23 percent against the dollar since the beginning of August.

"There's colossal demand for foreign currency from the corporates needing to refinance," said Yevgeny Nadorshin, chief economist at Trust Investment Bank in Moscow. "If you have such an option, it is better to buy now before the ruble devalues more."

The Central Bank's gradual depreciation policy has been criticized by some analysts who favor a one-off move, but the regulator has stood by its decision.

"If we had crashed the exchange rate in one go, where is the guarantee that people would have believed us that we would not do it again?" Alexei Ulyukayev, the Central Bank first deputy chairman, told Vedomosti on Sunday.

"A banker whom I respect ... told me that half the deposits in his bank are in foreign currency. But if we had [done a one-off devaluation] he would have had 80 or 90 percent in foreign currency."

Ulyukayev forecasts that this year would bring ruble volatility in both directions, with depreciation giving way to another bout of strength.

The Central Bank sold $57.4 billion and 12.6 billion euros last month, roughly doubling November's interventions, data showed Sunday, suggesting that the gradual weakening policy had kept up bets on further depreciation.

Dealers estimated Sunday's interventions at more than $2 billion.

Russia's foreign currency reserves have fallen by 27 percent since August to $438.2 billion amid the Central Bank's efforts to prop up the ruble.

The ruble rose to 41.1316 against the euro on Sunday, MICEX data showed. The currency traded at 41.32 per euro on Dec. 30. The Central Bank manages the target basket, which is 55 percent dollars and 45 percent euros, to protect exporters.

The Finance Ministry said on its web site Sunday that the country's two sovereign wealth funds rose to a combined record of $225.1 billion in December, giving the government a financial cushion as it prepares for the first budget deficit in a decade.

The Reserve Fund rose to $137.1 billion, or 4 trillion rubles, and the National Welfare Fund advanced to $88 billion, or 2.6 trillion rubles, in the month, the ministry said.

Bloomberg, Reuters