Goldman Sees Russia Taming Ruble Losses After Plunge to Record
March 4, 2014 10:18 am
Goldman Sachs Group Inc. anticipate that Russia will contain decline in the ruble as policy makers promised to curb volatility after ratcheting up interest rates and merchandising billions of dollars in the money market yesterday.
Bank Rossii, which ING Groep NV estimates merchandised as much as $12 billion yesterday, stated that it will begin setting ruble intervention parameters daily, a move that will give the central bank more room to ease swings. Goldman Sachs analysts predicted a change in tack, writing in a note to customers before the move that Bank Rossii may favor a policy that acknowledges for “discretionary interventions” while forecasting the ruble has restricted “downside” after sagging down to a record low.
Central bankers are stepping up efforts to shore up the ruble as investor demand for Russian assets decline after President Vladimir Putin’s military forces took over parts of neighboring Ukraine. The ruble relinquished 2 percent to 36.5809 per dollar, the largest pullback in 29 months and the weakest decline in the world yesterday. Bond yields skyrocketed after Bank Rossii boosted its key rate 1.50 percentage points.
“We may see the ruble even lower, but at close to 38-39 per dollar, Bank Rossii may stop shifting the corridor and announce” a floor for the ruble, Oleg Kouzmin, an economist at Renaissance Capital Holdings Ltd in Moscow, said by phone yesterday. There has already been a “very significant devaluation” and “they have lots of reserves” to defend the ruble, he said.
Foreign Reserves
Bank Rossii merchandised between $10.5 billion and $12 billion to aid the ruble yesterday, Dmitry Polevoy, chief economist at ING in Moscow, wrote in an emailed note. The central bank is scheduled to disseminate the information on the size of the sales tomorrow, in accordance with its rules to post figures with a two-day lag.
Russia’s foreign reserves have sagged down $40 billion since May to $493 billion, according to data through February 21. ING said the country’s “net” war chest, excluding its sovereign wealth fund, gold and International Monetary Fund reserves, is about $270 billion.
The central bank grants the ruble to float within a corridor versus its goal dollar-euro basket. Bank Rossii stated that it will set the amount of market interventions it takes to shift the trading band on a daily basis, giving officials more flexibility in knowing the amount of dollars it merchandises at a given price level before weakening the ruble’s exchanging band.
Yesterday, policy makers set the threshold at $1.5 billion, up from $350 million previously, according to the statement on Bank Rossii’s website.
Controlling Swings
“This measure was adopted to prevent risks to financial stability by limiting ruble exchange-rate fluctuations,” the central bank said late yesterday.
The ruble’s 10 percent pullback this year has been prompted in part by the upheaval in Ukraine that led to last month’s ouster of President Viktor Yanukovych, a Putin ally, and Russia’s incursion into the Crimea peninsula over the weekend.
U.S. Secretary of State John Kerry arrives in Kiev today, as Ukraine accuses Russia of threatening to seize its war ships in Crimea. Russia denied a report that it had given the ships, located near the Black Sea port of Sevastopol, an ultimatum to give up weapons. The U.S. is preparing sanctions in response to the military offensive, Jen Psaki, a State Department spokeswoman, said yesterday.
Crimea, where Russian speakers comprise the majority, has become the focal point of the Ukraine crisis after protests erupted in November when Yanukovych spurned a trade pact with the European Union in favor of closer ties with Russia. An interim cabinet in Kiev is seeking aid from the IMF and a return to negotiations with the EU.
Rates Surprise
The central bank, led by Chair Elvira Nabiullina, surprised investors yesterday by bolstering Russia’s key rate to 7 percent from 5.5 percent as part of its efforts to end the ruble’s sag down. The yield on benchmark bonds due 2027 climbed 52 basis points, or 0.52 percentage point, to 8.88 percent, the topmost level since June 2012. The Micex (INDEXCF) stock index backslide 11 percent to 1,288.81, the largest decline in five years.
The extra yield investors demand to hold Russia’s dollar-denominated bonds over U.S. Treasuries bolstered 24 basis points to 268 basis points yesterday, according to indexes recorded by JPMorgan Chase & Co.
The cost to guard versus a Russian default for five years has leaped 66 basis points since January 22 — when unrest in Ukraine spread from the capital — to 232 basis points. The move has pushed the cost of Russian swaps over those for Romania, Brazil and Indonesia. The gap in financial values between Brazilian and Russian credit default swaps is the widest since July 2012. The material has been provided by InstaForex Company – www.instaforex.com
Goldman Sachs Group Inc. anticipate that Russia will contain decline in the ruble as policy makers promised to curb volatility after ratcheting up interest rates and merchandising billions of dollars in the money market yesterday.
Bank Rossii, which ING Groep NV estimates merchandised as much as $12 billion yesterday, stated that it will begin setting ruble intervention parameters daily, a move that will give the central bank more room to ease swings. Goldman Sachs analysts predicted a change in tack, writing in a note to customers before the move that Bank Rossii may favor a policy that acknowledges for “discretionary interventions” while forecasting the ruble has restricted “downside” after sagging down to a record low.
Central bankers are stepping up efforts to shore up the ruble as investor demand for Russian assets decline after President Vladimir Putin’s military forces took over parts of neighboring Ukraine. The ruble relinquished 2 percent to 36.5809 per dollar, the largest pullback in 29 months and the weakest decline in the world yesterday. Bond yields skyrocketed after Bank Rossii boosted its key rate 1.50 percentage points.
“We may see the ruble even lower, but at close to 38-39 per dollar, Bank Rossii may stop shifting the corridor and announce” a floor for the ruble, Oleg Kouzmin, an economist at Renaissance Capital Holdings Ltd in Moscow, said by phone yesterday. There has already been a “very significant devaluation” and “they have lots of reserves” to defend the ruble, he said.
Foreign Reserves
Bank Rossii merchandised between $10.5 billion and $12 billion to aid the ruble yesterday, Dmitry Polevoy, chief economist at ING in Moscow, wrote in an emailed note. The central bank is scheduled to disseminate the information on the size of the sales tomorrow, in accordance with its rules to post figures with a two-day lag.
Russia’s foreign reserves have sagged down $40 billion since May to $493 billion, according to data through February 21. ING said the country’s “net” war chest, excluding its sovereign wealth fund, gold and International Monetary Fund reserves, is about $270 billion.
The central bank grants the ruble to float within a corridor versus its goal dollar-euro basket. Bank Rossii stated that it will set the amount of market interventions it takes to shift the trading band on a daily basis, giving officials more flexibility in knowing the amount of dollars it merchandises at a given price level before weakening the ruble’s exchanging band.
Yesterday, policy makers set the threshold at $1.5 billion, up from $350 million previously, according to the statement on Bank Rossii’s website.
Controlling Swings
“This measure was adopted to prevent risks to financial stability by limiting ruble exchange-rate fluctuations,” the central bank said late yesterday.
The ruble’s 10 percent pullback this year has been prompted in part by the upheaval in Ukraine that led to last month’s ouster of President Viktor Yanukovych, a Putin ally, and Russia’s incursion into the Crimea peninsula over the weekend.
U.S. Secretary of State John Kerry arrives in Kiev today, as Ukraine accuses Russia of threatening to seize its war ships in Crimea. Russia denied a report that it had given the ships, located near the Black Sea port of Sevastopol, an ultimatum to give up weapons. The U.S. is preparing sanctions in response to the military offensive, Jen Psaki, a State Department spokeswoman, said yesterday.
Crimea, where Russian speakers comprise the majority, has become the focal point of the Ukraine crisis after protests erupted in November when Yanukovych spurned a trade pact with the European Union in favor of closer ties with Russia. An interim cabinet in Kiev is seeking aid from the IMF and a return to negotiations with the EU.
Rates Surprise
The central bank, led by Chair Elvira Nabiullina, surprised investors yesterday by bolstering Russia’s key rate to 7 percent from 5.5 percent as part of its efforts to end the ruble’s sag down. The yield on benchmark bonds due 2027 climbed 52 basis points, or 0.52 percentage point, to 8.88 percent, the topmost level since June 2012. The Micex (INDEXCF) stock index backslide 11 percent to 1,288.81, the largest decline in five years.
The extra yield investors demand to hold Russia’s dollar-denominated bonds over U.S. Treasuries bolstered 24 basis points to 268 basis points yesterday, according to indexes recorded by JPMorgan Chase & Co.
The cost to guard versus a Russian default for five years has leaped 66 basis points since January 22 — when unrest in Ukraine spread from the capital — to 232 basis points. The move has pushed the cost of Russian swaps over those for Romania, Brazil and Indonesia. The gap in financial values between Brazilian and Russian credit default swaps is the widest since July 2012.
The material has been provided by InstaForex Company – www.instaforex.com
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