Ruble Drops Second Day as Oil Falls, Europe Leaders Meet, Tax Demand Ebbs

January 30, 2012

 

The ruble slid for a second day against the dollar as Europe’s debt crisis reduced oil prices and quelled appetite for riskier assets, while demand for the Russian currency to pay local taxes declined.

The ruble weakened 0.2 percent to 30.39 and 0.5 percent to 39.99 against the euro as of 11.41 a.m. in Moscow. The currency dropped 0.4 percent to 34.7127 against the central bank’s target dollar-euro basket, its sharpest decline since the start of the year on a closing basis.

Crude for March delivery dropped for a second day, retreating 0.7 percent to $98.91 a barrel in New York, as European leaders meet today to discuss the region’s debt crisis, which has slowed the economy and threatened global fuel consumption. The ruble had its longest winning streak in four years versus the dollar through Jan. 26 as companies bought the currency to pay local taxes and banks sought funds to repay about $24 billion of Finance Ministry loans.

As well as an “overall retreat of risk-on attitudes,” the ruble is sliding as demand to pay about 900 billion ($30 billion) in domestic taxes wanes and investors bet the currency’s gains will spur central bank interventions to weaken its advance, Ivan Tchakarov, chief economist at Renaissance Capital in Moscow, said today by e-mail.

“The central bank may now step in to limit further ruble appreciation,” he said. “It has strengthened quite a lot since the start of the year.”

Floating Corridor

Bank Rossii buys and sells international currencies to manage the ruble within a floating corridor and against a basket of about 55 percent dollars and 45 percent euros. An exchange rate from 34.70 to 33.87 against the basket implies daily interventions of as much as $150 million to weaken the ruble, according to VTB Group’s estimates. The ruble closed at 34.5672 against the basket at the end of last week.

Investors increased bets the ruble would weaken further, with non-deliverable forwards showing the currency at 30.7865 per dollar in three months. Russia’s dollar Eurobond due in 2020 rose, lowering the yield 0.04 basis points to 4.269 percent. Domestic notes maturing March 2018 were little changed with the yield falling two basis points to 7.88 percent.

 
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