Russia’s central bank may pick up where it left off earlier this year to avert another run on the ruble.
To take pressure off the currency, the Bank of Russia will restart one-year foreign-exchange repurchase operations that were halted on June 1, according to 14 of 17 economists surveyed by Bloomberg.
Other support measures may include “targeted” currency interventions and a delay of further interest-rate cuts, according to BNP Paribas. Policy makers will start verbal intervention with the oil price below $50 a barrel, Royal Bank of Scotland Group said.
The central bank may be forced to take a page from the playbook used to fight Russia’s worst currency crisis since 1998 as companies face growing repayments of external debt and last week’s suspension of foreign-exchange purchases fails to arrest a plunge in the ruble.
It made currency available through its operations starting in October, introducing one-year facilities the following month to curb a deficit in dollar liquidity. “FX repo auctions are an emergency facility used when pressure on the ruble is extreme,” said Sergey Narkevich, an analyst at PAO Promsvyazbank in Moscow.
“Oil prices will with high probability stay low in the next few months. At the same time, a large amount of external debt repayment is due in September 2015, so it is likely that the Bank of Russia will launch the 12-month FX repo auctions then.”
Most economists predicted that 12-month foreign-currency auctions will be resumed in September at the latest, with the rest seeing the programme revived some time in the fourth quarter. Some of the loans borrowed by banks begin to expire in November.
“The central bank’s hands are tied,” Tatiana Orlova, the chief Russia economist for RBS in London, said. “It can’t hike its policy rate to support the currency. The resumption of 12-month FX repo auctions is the least painful way of supporting the ruble, versus FX interventions or rate hikes.”
The central bank last week reduced rates for the fifth time this year, cutting its benchmark by a half point to 11%, while dropping its commitment to continue easing as inflation decelerates. Oil is trading in a bear market as expanding supplies and signs of slower economic growth in China fuelled a rout in commodities. That made the ruble to the worst performer among major currencies last month.
The ruble yesterday appreciated against the dollar after three days of losses, climbing 1.1% to 62.8. Brent for September settlement rose 84c to $50.36 a barrel. The Bank of Russia has fewer tools available to shore up the ruble after introducing a free float last November. It has pledged to avoid interventions on the foreign-exchange market unless the currency’s swings threatened financial stability.
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