Business ombudsman warns of carry trade, ruble bubble burst

MOSCOW, Apr 17 (PRIME) -- Carry trade operations are the main reason behind a recent significant strengthening of the ruble, which may end with a rapid outflow of private capital and a plunge of the currency after the bubble bursts, business ombudsman Boris Titov told reporters on Monday.

The ruble has grown by 54% against the U.S. dollar since it hit the bottom of about 86 in January 2016. Earlier in April, Central Bank Chairwoman Elvira Nabiullina said that the foreign currency inflow via carry trade operations amounted to U.S. $2–5 billion, similar to 2012–2013, and had no significant impact on the ruble.

But Titov sees carry trade as a threat to stability of the internal financial market. “If the ruble continues to strengthen, it will create a problem. There is a bubble of the rate (in the form of a strong ruble) and it may pop very soon,” he said.

Not only foreign investors, but mid-sized and large Russian banks are able to make profit on carry trade. “Knowing that the (key) rate will remain high for a rather long time, they may take a loan in euros, convert it into rubles, and receive high yield from investing it into ruble instruments. And no headache from lending to the real sector (of the economy),” he said.

Speculators that use carry trade are visible in exchange operations, but there are also off-exchange and even extra-bank operations, so the central bank’s 3% estimate of the share of speculators at the internal currency market is incorrect, they may account for up to 30% of all the players, he said.

Higher oil prices and economic reforms that would propel the gross domestic product higher, may support the ruble, but there is not much hope for an increase of oil prices. “If (U.S. President Donald) Trump implements his strategy of energy independence of the U.S., we should not expect the oil to be expensive,” Titov said.

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