Ruble Gains as Russian Bank Unexpectedly Free Floats Currency

Ruble Gains as Russia Lets Go of the Reins

Central Bank Abandons Routine Interventions and Lets Currency Float Freely on the Market

In trading Monday, the ruble extended a recovery that began Friday after hitting record intraday lows against the U.S. dollar and euro.

MOSCOW-Russia’s battered ruble recovered after President Vladimir Putin dismissed its recent drop as “speculative” and the central bank said it would allow the rate to float freely in the market, reducing its regular interventions and tightening supplies of rubles to discourage domestic investors from betting against the currency.

“We’re seeing some speculative jumps in the rate, but I think this should come to an end in the nearest future in light of the actions the central bank is taking in response to speculators,” Mr. Putin told a business conference early Monday in Beijing, where he is on a visit.

Shortly afterward, the central bank said it would eliminate the trading corridor it has been setting for the ruble and the regular interventions when it reached the boundaries. In recent weeks, that mechanism has done little to stem the ruble’s slide but cost the central bank nearly $30 billion in interventions. In its place, the central bank said it would intervene only when it sees “threats to financial stability.”

The ruble’s rise against the dollar on Monday, unassisted by intervention from the central bank, could foreshadow a period of relative stability for the currency, analysts and economists say. After the ruble’s tumble of as much as 32% against the dollar this year, currency traders say the currency’s current level-about 45 to the U.S. dollar and 56 to the euro-reflects the economic impact of Western sanctions and the recent slump in oil prices. Russia is the world’s second-biggest oil exporter after Saudi Arabia.

If the ruble stabilizes at least temporarily, that could remove a headache for the Kremlin. Concern has ticked up in recent weeks over rising prices, driven in large part by the cost of imports priced in rubles and about fading economic prospects.

Elvira Nabiullina, the central bank’s chairwoman, told Rossiya-24 state television Monday that the bank’s reserves are adequate. She explained the decision to end regular interventions as a recognition of reality, saying that “if we spend [reserves] unwisely, trying to fight fundamental market trends, that would lead us to the same result, only a bit later and with lower reserves.”


“The drop in the ruble rate over the last few days and its excessive fluctuations have nothing to do with economic fundamentals,” Ms. Nabiullina said. “In our view, the ruble rate was deeply undervalued compared to an equilibrium level.”

On Monday, the ruble extended a recovery that began Friday after hitting record intraday lows against the dollar and euro. By the end of the trading session on the Moscow exchange, the ruble was at 45.53 per dollar and 56.61 per euro, compared with Friday’s lows of more than 48 against the dollar and 60 against the euro.

In late New York trading, the ruble was at 45.997 per dollar and at 57.133 per ruble.

“Verbal intervention by the central bank is having an effect on the ruble: The threat of sizable one-off FX intervention seems to be working,” said Tatiana Orlova, Russia economist at Royal Bank of Scotland. “Also, President Putin threw his weight behind the [central bank’s] policy shift this morning, which I think could help to stabilize the population’s expectations.”

Ms. Nabiullina said the central bank will limit its interventions to situations where needed to “break panic, speculative demand.” In addition, the bank will limit lending of rubles to commercial banks, “which unfortunately have been used not only to finance the economy but also for ‘games’ on the currency market.”

Finance Minister Anton Siluanov praised the move to the free float but scolded the bank for not doing it earlier.

“I think that the decision came a bit too late as there was no need in having a trading corridor and spending reserves when the pressure on the ruble emerged,” Mr. Siluanov said.

The market moves and the central bank’s shifting responses-as recently as last week, the bank left the corridor mechanism in place but reduced its regular intervention amounts-underline how the combination of Western sanctions and the falling price of oil, Russia’s main export, have whipsawed the country’s economy and financial markets.

Also Monday, the central bank downgraded its forecast for economic growth and raised its expectation for capital outflow this year; it warned it now expects sanctions to stay in place through 2017. Even so, the bank said it expects Russia to be able to avoid a deep recession unless oil prices fall significantly further.

“The Russian economy will be stable even if oil prices remain at the level of $80 a barrel in 2015-17 and mutual sanctions are not canceled,” said Kseniya Yudaeva, first deputy chairwoman. But she said the bank’s baseline scenario calls for stagnation over the next two years after growth of 0.3% this year-the weakest performance since the 1990s and down from its previous estimates of 0.4%. An oil-price drop to $60 a barrel, something few eorecasters xpect, would trigger a deeper recession and further falls in the ruble, the bank warned.

The central bank also said it expects capital outflows to reach $128 billion this year, the highest since 2008, and fall back only slightly next year to $99 billion.

That outlook is a big reason why economists expect pressure on the ruble to remain despite the latest moves.

“The CBR’s limitations on ruble liquidity may help to stabilize the currency over the short term. However, ruble volatility and weakness may persist until there is more clarity on the CBR’s appetite for deploying discretionary interventions, while longer-term ruble depreciation may continue on deteriorating fundamentals,” said Phoenix Kalen of strategist at Société Générale .

-Alexander Kolyandr in Moscow and Chiara Albanese in London contributed to this item.