Ruble Claws Back After 2-Month Decline

The Central Bank widened the ruble's trading band on Wednesday for the third time in as many days, yet for the second straight day the currency gained against both the dollar and the euro as tax payment deadlines helped produce a ruble deficit.

While authorities said the ruble was nearing the end of its two-month fall, analysts debated whether the currency's equilibrium would actually hold.

The ruble closed at 37.17 against the dollar/euro basket on Wednesday, gaining 0.6 percent from Tuesday's 37.38 close. The currency strengthened from 32.97 to 32.77 against the dollar and from 42.64 to 42.21 against the euro.

The deadline for VAT tax payments was Jan. 20, and companies will have to pay profit taxes Jan. 28, said Katya Malofeyeva, chief economist at Renaissance Capital. The domestic demand for rubles is likely tied to the two tax payments and may not continue once the period for the payments is over, she said.

"Global markets saw a heavy downward correction yesterday, and that's something that affects oil outlook and the ruble's outlook as well," Malofeyeva said.

Kremlin economic adviser Arkady Dvorkovich said Tuesday that the ruble was near to reaching its equilibrium level. The same day, the Finance Ministry agreed to base the federal budget on the price of oil at $41 per barrel, a calculation that assumes the ruble will average at 41.40 to the dollar/euro basket.

Finance Minister Alexei Kudrin also projected a positive ruble forecast at a financial forum in Hong Kong this week.

The coincidence of the ruble's stability and the Kremlin's announcements imply that the state might have the currency's balancing point in sight, said Mikhail Galkin, head of fixed income research at MDM Bank.

"In November, the authorities apparently did their math, correctly assuming a further slide in the oil price, and decided to move to a new level of exchange rate that would be better balancing external trade and the budget," Galkin said.

"It looks like they are approaching the level they wanted, and they are orchestrating a stop in devaluation by creating a deficit of rubles and sending signals through verbal interventions -- like what Arkady Dvorkovich said," he said.

The Central Bank helped spur the deficit by offering an unusually low sum of 80 billion rubles ($2.4 billion) at its deposit auction this week, he added.

Still, Malofeyeva said, the Central Bank may simply be trying to throw off currency speculators who have profited from betting on the ruble's decline. The ruble has lost 29 percent of its value against the dollar since August and has been allowed devalue eight times this year by the Central Bank at a rate of about 2 percent per devaluation.

Speculators have also benefited from the money the Central Bank has injected into the national banking system, a figure equal to about 2 trillion rubles (almost $60 billion), said Natalya Orlova, chief economist at Alfa Bank.

"If the Central Bank reduces support to the banking sector, we can expect the ruble to appreciate. If the Central Bank continues to provide short-term ruble liquidity, then I think the chance of appreciation is low," Orlova said.

Galkin of MDM said there was no chance the Central Bank had intervened to prop up the ruble on Tuesday and that there was a greater chance the bank intervened to buy currency -- not sell it -- on Wednesday. "The ruble is not a one-way story anymore, at least for the moment, and the regime is more looking like a controlled free-float," Galkin said.

Orlova dismissed the idea that the Central Bank would actually switch to a managed float, where the bank would intervene with the currency only when absolutely necessary. This sort of "dirty float" could cost the state household stability, Orlova said.

"People are becoming less secure about the value of their savings and their revenues. Switching to this dirty float in the current environment would exert even more pressure on consumption and on savings," Orlova said.