Ruble hits new lows as Bank of Russia focuses on more “pressing” issues
By Sober Look
Capital outflows from Russia seem to be picking up steam.
Bloomberg: – The share of foreigners on the 3.75 trillion ruble ($103 billion) government bond market declined to 22.7 percent on Feb. 1 from 23.9 percent at the start of the year. That’s the lowest level in 12 months, data on Bank Rossii’s website showed today.
“February is expected to be no better,” Leonid Ignatyev, head of fixed income research at BCS Financial Group in Moscow, said in e-mailed comments. “And the beginning of March is going to be far worse because of the Ukraine conflict.”
Overseas holdings of so-called OFZs have fallen 80 billion rubles from a peak on May 1 last year. Funds investing in Russian fixed-income securities had outflows of $3.85 billion from the start of May to March 5, or 10 percent of the assets they manage, Alexey Todorov, an analyst at OAO Gazprombank, said in e-mailed comments today, citing EPFR Global data.
These outflows – combined with the central bank’s “weaker ruble” policies and the Ukrainian tensions – are all fueling the ruble sell-off. The ruble resumed its slide this week, hitting another post-devaluation low against the euro.
The prospect of steady taper from the Fed – especially given today’s strong employment number – isn’t helping either. Higher dollar interest rates have sent other vulnerable emerging market currencies lower as well (South Africa, Brazil, and Turkey are all lower by over 1% today).
Whether the Bank of Russia will move in aggressively to defend the currency remains unclear. It has been busy with other matters recently. Putin is using the central bank as a political and financial tool to push his agenda, including pressuring the Ukrainians. Taking over a major Ukrainian bank in Moscow is an example.
Reuters: – Russia’s central bank is taking steps to prevent the bankruptcy of the Moscow subsidiary of Ukraine’s Privatbank, the Bank of Russia said on Friday, after Privatbank accused it of putting Moskomprivatbank under administration for political reasons.
The central bank said it was taking the measures under a law on banking system stability which enables the state-run Deposit Insurance Agency to provide financial assistance to banks, acquire their property and liabilities, acquire shares, and sell collateral.
The Deposit Insurance Agency has been appointed as the bank’s temporary administrator, the central bank said.