March 4 (Bloomberg) -- Russia will defend the ruble’s exchange rate through March, beating off speculators to keep the currency within the trading band set by the central bank, according to analysts surveyed by Bloomberg.
The ruble is likely to trade around 40.50 against Russia’s target dollar-euro basket by the end of this month, based on the median estimate of 20 analysts. That’s within the limit of 41 set by Bank Rossii when it ended its policy of “gradual devaluation.” The currency gained 0.2 percent to 40.3274 today.
The ruble slumped 30 percent against the dollar during the past six months as lower oil prices and Russia’s worst financial crisis since the government’s default in 1998 caused investors to withdraw more than $300 billion, according to BNP Paribas SA data. Bank Rossii drained more than a third of its foreign- exchange reserves, the world’s third-largest at $381.9 billion, to slow the depreciation since August. Policy makers switched tack in January, vowing to stop the decline at 41 by raising interest rates, cutting loans to banks and pledging reserves.
“This is an important game for the central bank and it’s all about creating pain for speculators by not allowing the range to break,” said Ulrich Leuchtmann, head of currency strategy in Frankfurt at Commerzbank AG, which ranks itself among the 10 biggest ruble traders worldwide. “If the 41 level survives for the next four weeks then the depreciation pressure will be significantly reduced.”
While Russia’s government said the economy will contract for the first time in a decade and currency reserves are down 36 percent from August, the nation is in a stronger position than its neighbors. Ukraine discussed borrowing $5 billion. Kazakhstan wants Russia to buy ailing BTA Bank. Belarus is asking for $3 billion in loans, on top of $2 billion granted last year.
By stabilizing the ruble, Russia helped spur a 6.6 percent advance in the benchmark Micex stock index last month, leading gains in Europe as Ukraine’s PFTS index lost 21 percent. The Micex climbed 3.9 percent to a two-week high today.
Russia’s benchmark 30-year dollar bonds yield 10.05 percent, compared with the 28.6 percent yield investors demand to hold Ukraine’s bonds due in 2015.
Bank Rossii Chairman Sergey Ignatiev said on Jan. 22 that policy makers won’t allow the ruble to weaken beyond 41 unless Urals crude, Russia’s chief oil blend, falls to $30 a barrel and remains there. Urals climbed 0.4 percent to $42.60 today. Russia expects an average price of $41 a barrel this year, lower than the $70 average required to balance the current budget, which Prime Minister Vladimir Putin has ordered be reviewed. The budget deficit will increase to 8 percent of gross domestic product, according to the Economy Ministry.
The central bank raised the interest rate charged on overnight and seven-day loans issued for collateral in so-called repurchase auctions twice last month to 12 percent. It also increased the Lombard rate, charged on credits backed by first- class securities, to 12 percent, and started curbing the amounts offered to major banks in both repo and unsecured-loan auctions.
While Russian banks bid for as much as 359.4 billion rubles ($9.9 billion) in repo loans so far this month, the central bank lent just 259.2 billion rubles, according to Bank Rossii data. Banks had used “almost all” the money from central bank loan auctions to bet against the ruble, Natalia Orlova, chief economist at Moscow’s Alfa Bank, said last month.
Bank Rossii is likely to keep the repo rate at 12 percent throughout March, according to the median estimate of 13 economists in the survey conducted this week.
The ruble was little changed at 36.2298 per dollar today, and gained 0.4 percent to 45.3485 per euro. The range of estimates in the survey was 39.03 to 41 versus the basket. The mechanism, in place since 2005, is used to limit currency swings that disadvantage Russian exporters. The basket is made up of about 55 percent dollars and the rest euros.
“They can easily keep the ruble where it is with the control they now have over liquidity,” said Clemens Grafe, chief economist in Moscow at UBS AG, which sees the ruble at 40.50 versus the basket by the end of the month. “They’re biding time for the market to understand that the ruble is now fairly valued.”
Futures traders expect the ruble to weaken as much as 18 percent this year to 44.18 per dollar, according to prices for non-deliverable forwards. In three months, NDFs show the currency at 38.14 per dollar, 5 percent weaker. The agreements are used to bet on a currency’s movements by fixing an exchange rate at a particular level in the future.
The ruble’s stability is forcing traders to close bets against it, helping to push the currency as strong as 40 to the basket by the end of March, Commerzbank’s Leuchtmann said. By year-end, the ruble may strengthen to 38 against the basket, given a “moderate” recovery in global appetite for oil, he said.