For the Russian ruble, free float means going from emerging markets second-best to worst-performing currency in a week, with plunging oil prices signaling more losses.
The ruble’s 9.3% slump last week to 50.4085 per dollar, the worst drop among 24 emerging markets tracked by Bloomberg, followed its biggest weekly gain in more than two years. Options trading show greater than 50% odds the currency will weaken another 10% by March 1. Russian bonds fell for a fourth month in five in November.
Central bank Governor Elvira Nabiullina’s decision last month to create a free-floating ruble rattled short-sellers, sparking a week-long surge. The change tied the currency’s fortunes to the price of oil, Russia’s main source of export revenue, which plunged last week after OPEC kept its output ceiling unchanged. The drop in crude is adding to headwinds for an economy on the brink of a recession because of sanctions.
“The outlook for ruble assets is pretty bleak because everything is against them,” Richard Segal, head of international credit strategy at Jefferies International Ltd., said by e-mail from London Nov. 28. Nabiullina’s “resolve to let the currency float will be tested and because this is a new policy, it will keep a lot of investors on edge,” he said.
The ruble has weakened 37% against the dollar this year, the worst performer among 24 emerging-market currencies tracked by Bloomberg. It dropped 13% in November.
Nabiullina set the ruble free months ahead of target after spending $90 billion of the central bank’s gold and foreign-currency reserves this year to manage the currency’s slide. The Bank of Russia may still conduct “large-scale” interventions if it sees risks to financial stability, she told lawmakers in Moscow last week.
“A significant part” of the ruble speculators have abandoned the market and the current sell-off is “purely” a result of weaker oil, according to Vladimir Osakovskiy, chief economist for Russia and the Commonwealth of Independent States at Bank of America Corp. in Moscow, said by e-mail on Nov. 28. With crude at $70 a barrel, the currency would reach “equilibrium” at about 50-52 rubles per dollar, he said.
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