Wagers for Russian interest-rate increases soared to a six-year high and government bonds had the worst week since 2009 as the ruble’s decline prompted the central bank to increase currency interventions.
Policymakers may be preparing to raise interest rates by 360 basis points in the next three months, according to forward-rate agreements tracked by Bloomberg. The ruble rose 3.3 percent to 52.5150 per dollar by 7:42 p.m. Friday in Moscow, paring its weekly decline to 4 percent. Yields on 10-year bonds jumped 81 basis points to cross 12 percent for the first time since 2009.
Pressure is mounting on central bank Gov. Elvira Nabiullina to increase rates at a Dec. 11 policy meeting as oil’s slide and sanctions over the conflict in Ukraine put the ruble on course for its biggest annual drop since Russia’s 1998 default. Capital flight has quickened as the Russian economy heads for recession, with data Friday showing bond mutual funds lost a third of their assets this year, while OAO Alfa Bank said its clients are increasing the pace of withdrawals.
“The central bank has to come in with a massive rate hike, FX interventions alone might not be able to stabilize the situation,” Bernd Berg, London-based strategist at Societe Generale SA, said by e-mail. The market is seeking a rate increase “of a couple of hundred basis points,” he said.
Nabiullina drained about $74 billion of Russia’s foreign-exchange reserves this year to support the ruble and raised rates by 400 basis points after President Vladimir Putin’s annexation of Crimea in March led the U.S. and European Union to impose sanctions and oil tumbled into a bear market.
Putin pledged to punish speculators attacking the ruble with “harsh” steps in an address to parliament Thursday.
Clients of OAO Alfa-Bank are withdrawing $1 million to $3 million a day, its chief managing director Alexey Marey told reporters Friday, adding there wasn’t a frenzy to take out funds.
