Report: Credit Suisse sees ruble float as support saps reserves

MOSCOW, Oct 15 (PRIME) -- Russia’s central bank may accelerate its planned switch to a free-floating exchange rate to avoid depleting the country’s currency reserves by slowing the ruble’s slump, Credit Suisse Group AG said, Bloomberg reported Wednesday.

Bank of Russia spent more than U.S. $9 billion on interventions this month to slow the ruble’s decline, according to Credit Suisse, as tumbling oil prices and sanctions imposed by the U.S. and the European Union fuel a foreign-currency shortage. While the central bank plans to let the ruble float freely by the end of this year, the monetary authority may decide to conduct market interventions if needed, Chairwoman Governor Elvira Nabiullina said October 2.

Policy makers sold about $200 billion in seven months to prop up the currency after the collapse of Lehman Brothers Holdings Inc. six years ago, slashing the country’s reserves by almost 40%. The ruble has depreciated 16% since June, the worst performance worldwide, as Brent crude dropped to the lowest level since 2010. Oil and natural-gas industries account for about half Russia’s state revenue.

“The central bank will not want to repeat the experience of gradual devaluation in 2008-09 when it lost the bulk of its foreign-exchange reserves in defense of the currency,” Credit Suisse analyst Alexey Pogorelov wrote in an e-mailed note. “The experience of that period suggests the central bank should allow the ruble to depreciate and catch up with weaker oil prices.”

Funding Pledge

The ruble climbed for the first time in nine days against the central bank’s dollar-euro basket today, rallying 0.7% to 45.7645 as of 6:02 p.m. in Moscow after the Finance Ministry said it would start using foreign-currency deposit auctions within a month to ease the dollar squeeze.

The planned auctions come after interventions, which restarted this month, contributed to an 11% drop in the nation’s foreign-currency cash pile this year to $454 billion last week.

Sanctions have closed foreign debt markets for some of the nation’s biggest companies as the U.S. and E.U. punish the country for President Vladimir Putin’s alleged role in supporting separatist forces in eastern Ukraine. The restrictions drove the premium to swap rubles for dollars to a record 300 basis points at the end of last week.

Capital Flight

Since Putin’s incursion into Ukraine at the start of March, the central bank has raised interest rates 250 basis points to support Russian assets. Outflows soared to $74.6 billion in the first half, compared with $61 billion in all of 2013. The monetary authority kept rates on hold at its last meeting as policy makers weighed an economy near recession and above-target inflation.

The decision to accelerate the switch to a free-float “might be accompanied with a rate hike, but we think that such a move would be aggressive,” Pogorelov said. “The economy is operating 1 percent below its potential at present.”

End