Russia Signals Tighter Ruble Reins as Economy Braces for Shocks

(Bloomberg – bloomberg.com – Anna Andrianova, Andrey Biryukov, Olga Voitova – July 9, 2015)

Russia is asserting more control over its currency as crises from Greece to China create new vulnerabilities for the recession-hit economy.

Russia is succeeding at keeping the ruble within an “acceptable corridor” while maintaining its reserves and a positive trade balance, President Vladimir Putin said on Thursday at a meeting of leaders of the BRICS countries in Ufa, Russia. The central bank has the resources to prevent “serious volatility” of the exchange rate, Finance Minister Anton Siluanov said at the same event.

While the central bank has defended its free-float policy, the Russian leadership has been more unabashed in acknowledging a measure of control over the currency market as the economy enters a recession. The standoff over Greece and the market turmoil plaguing China have weighed on Russian assets and some officials are raising questions about the ability of the world’s biggest energy exporter to endure the crises gripping the world economy.

“It’s probably premature to say that all the risks have already been minimized and we’ll soon be enjoying at least a period of recovery,” Deputy Economy Minister Nikolay Podguzov said at a banking conference in St. Petersburg on Thursday. “The Chinese events have seriously shaken the situation on outside markets. As long as we have an open economy, we are still subject to serious external shocks.”

The Bank of Russia is buying as much as $200 million daily to boost reserves to $500 billion, a process it estimates may take from five to seven years. It’s purchased about $7.4 billion since announcing its policy shift on May 13.

Chinese Rout

China has battled to restore investor confidence in a market that lost $3.9 trillion in less than a month, with government efforts helping the Shanghai Composite Index jump the most since 2009 after Wednesday’s 5.9 percent slump.

The ruble appreciated for the second time in three days, adding 0.8 percent versus the dollar at 12:42 p.m. in Moscow. The Micex Index climbed 0.6 percent, snapping a four-day slide.

Russia should start replenishing one of its sovereign wealth funds with proceeds from higher oil prices to stem the ruble’s appreciation, Siluanov said July 2. Putin said last month that a weaker currency is helping producers struggling amid a recession while the government runs out of options to counter a deepening slump. Russia is succumbing to its first economic contraction since 2009 after energy prices fell and sanctions over Ukraine curbed financing.

“Of course, policy makers keep a close eye on the ruble because of the impact it might have on inflation, financial stability and budget revenues,” Liza Ermolenko, an analyst at London-based Capital Economics Ltd., said by e-mail. “But we still think that they are not targeting a particular level of the exchange rate.

Article ©2015 Bloomberg L.P. All Rights Reserved. Article also appeared at bloomberg.com/news/articles/2015-07-09/russia-signals-tighter-ruble-reins-as-economy-braces-for-shocks