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Bloomberg 13.10.2014 Fedor Bizikov's comment "Ruble Risks Betrayal at Home in Rush for Dollars: Russia Credit"

Ruble Risks Betrayal at Home in Rush for Dollars: Russia Credit
2014-10-13 10:08:11.88 GMT

By Vladimir Kuznetsov and Natasha Doff
Oct. 13 (Bloomberg) -- More Russians are keeping their cash
in dollars and euros as the ruble falls to records amid central
bank efforts to maintain control over the pace of the decline.
The number of people with foreign-currency holdings rose in
September from August, Bank of Russia said in its inflation
report published Oct. 10. OAO Sberbank, Russia’s biggest lender,
had its first drop in retail deposits since May last month,
while the premium to swap rubles for dollars climbed to a record
at the end of last week, data compiled by Bloomberg show.
Investors are betting the most in six years that central
bank Governor Elvira Nabiullina will have to raise interest
rates after about $6 billion of interventions failed to prevent
the ruble from reaching all-time lows every day last week. While
the economy risks sinking into a recession amid U.S. and
European Union sanctions over the crisis in Ukraine, policy
makers must underpin confidence in the ruble.
“Once the mindset of a crisis sets in, it becomes a self-
fulfilling prophecy,” Neil Shearing, an economist at Capital
Economics Ltd. in London, said by phone on Oct. 10. “Residents
start to anticipate further weakness in the ruble and shift out
of rubles and into hard currency and that precipitates further
weakness.”

Psychological Levels

Russians have been moving savings out of the ruble as
President Vladimir Putin’s standoff with the U.S. and its allies
worsened with the March annexation of Crimea. The ratio of
deposits in foreign currencies rose to 19.4 percent in August
from 17.4 percent in December, according to central bank data.
While September figures aren’t yet available, the ruble
tumbled during the month as the U.S. and EU imposed new
penalties on companies including OAO Rosneft, Russia’s biggest
oil company, and Sberbank. The lender’s deposits fell 33.9
billion rubles ($840 million) in September, data showed Oct. 7.
The depreciation, the world’s steepest since June, has
gathered momentum this month as oil’s drop below $90 a barrel
dimmed the outlook for Russia’s budget revenue. The currency
weakened past 40 per dollar for the first time last week.
“The ruble is breaking through psychological levels,”
Fedor Bizikov, a money manager at GHP Group in Moscow said by
phone on Oct. 10.

2008 Crisis

Russians also moved their cash out of rubles when the 2008
financial crisis sent the currency sliding as oil prices tumbled
below $40 a barrel. The ratio of bank deposits held in foreign
currencies more than doubled in six months to 34 percent by
January 2009, central bank data show.
Even with the past month’s drop, Brent averaged $106 a
barrel in 2014. Ruble weakness is also boosting proceeds of
state energy exporters since they earn in dollars, helping the
government more than double its budget surplus in the first
eight months.
Funding conditions for Russian companies are worsening as
they face $55 billion of debt maturities this year, central bank
estimates show. The rate on a three-year ruble-dollar basis swap
reached negative 301 basis points today, signaling traders are
willing to pay a record premium for dollars.
Nabiullina could slow the flight by raising borrowing
costs, according to Natalia Orlova, the chief economist at Alfa
Bank in Moscow. She held the key rate at 8 percent last month
following 250 basis points of increases since March. The next
scheduled rate meeting is Oct. 31.

‘One-Way Street’

“As the market sentiment is still dominated by the fears
of capital controls, we believe a hike in the interest rate
would be a good signal,” Orlova and analyst Dmitry Dolgin wrote
in an e-mailed note Oct. 10.
Wagers for rate increases in the next three months soared
more than 100 basis points last week to 168 points on Oct. 10,
the most since October 2008. The Bank of Russia is trying to
balance inflation three percentage points above its 5 percent
target and an economy nearing recession.
Russian reserves are at a four-year low after dropping $57
billion in 2014 to $454.7 billion last week. Brent traded near a
four-year low, Russia’s 10-year bonds had their worst week since
August and the ruble fell 1.4 percent versus the dollar-euro
basket. The currency slid for a seventh day today, losing 0.5
percent to 45.2826 as of 2:05 p.m. in Moscow.
“With oil prices this low, it’s a one-way street for the
ruble,” Lars Christensen, chief emerging-market analyst at
Danske Bank A/S in Copenhagen, said by phone. “The central bank
is trying to fight the speed of it, but they also know that they
can’t fight it forever and the market knows that.”